Quote for the Week
We actually can see and indeed measure how badly investors do at timing. They’re their own worst enemy. As Warren Buffett says, the two greatest enemies of equity investors are expenses and emotions. You can see the expenses in the gap between the market return and fund returns, and the emotions in the gap between fund returns and investor returns. When you look at data on the origin of these shortfalls, it is staggeringly loaded toward the degree of fund specialization; in other words, the biggest gap between fund time-weighted returns and fund investor dollar-weighted returns is found in technology funds, telecommunications funds, aggressive growth funds. We did a study that covered six years, i.e., the last three years of the up market and the first three years of the down market. With the ups and downs taken together, the twenty-five largest sector funds actually returned about 5.5 percent per year, versus 3.7 percent for the twenty-five largest diversified funds. However, while the typical investor in the diversified mutual funds ran about 2 percent behind the funds themselves, the investors in these specialty funds fell short of the fund returns by about 14 percent a year, which, when compounded over six years, is a staggering shortfall of 59 percent. — John Bogle (source)
From the Archives
Last Call
- Rules Matter More Than Insight – Financial Pen
- Diversification is Survival: Five Lessons from Aswath Damodaran – Excess Returns
- Financial Planning Lessons from My First Half Marathon – Financially Unbroken
- It Makes a Difference Who You Are – Better Letter
- The Squeeze – S. Godin
- America’s Own Goal: Americans Pay Almost Entirely for Tariffs – KIEL
- Do Commodities Get Cheaper Over Time? – Construction Physics
- Warren Buffett, Charlie Munger and the Reading Unlock – SatPost
- How Prediction Markets Turned Life into a Dystopian Gambling Experiment – The Ringer
- Even More Very Good Music Facts – Go Jeff Go