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Resist the temptation to time the market swings...

Not all but a few some! I have paper gain and realised gain so far. Now my overall unit trust porfolio is on the positive side!

singaporegal      ( Date: 26-Jul-2009 10:36) Posted: Case in point - I often wonder why people put in their hard earned money with fund managers when all they do is to help us lose money even faster?

 

The general public may not be much educated in investment knowledge and so have to rely on professional fund managers to help with investing. Some people are afraid to step out of their comfort zone to study and do investments by themselves. So, they conveniently think that there are professional fund managers that can help them earn "guaranteed" returns by investing in their funds. Some people are simply too busy with their work and family to study and monitor their investments by themselves, so they again rely on such professional fund managers.

Actually, it is important and will be better if one can study and gain investing knowledge, and do own investments. It is safer and more lucrative contrary to what most people who thinks that investing needs to be undertaken solely by professional fund managers or financial advisers. I know of a few financial advisers (also my friends) who worked in local insurance companies that did not know anything much out of their job scope of investments. They only knew about their own companies' unit trust funds and cannot offer any help to other investments such as forex, common stocks etc. Anyway, it is not their responsibility to advise out of their circle of competence. I will not be surprised to even find stock brokers that may not be as knowledgeable in common stock investing as they should be.

So, is there an overestimation of the capabilities of professional fund managers or professional financial advisers? Maybe yes or maybe no? However, we have seen many professional fund managers whose managed funds also lost big time during last year sharp decline. So, if fund managers are so good with investing, they should be the ones consistently outperforming the benchmark and not lose so much based on their "expert knowledge and judgement"? One needs to think carefully is there a need to pay a premium for such professional help to get back same returns or even lower returns than benchmark?

It is up to everyone's discretion to decide on investing one's hard-earned money with others or doing it by oneself. One sound investing principle is "To understand what one is investing in". If one does not understand to a comfortable degree (the worst consequence and possible shortfalls)of what one is investing in, then it maybe better not to invest at all. The risk of losing one's hard-earned money is more painful compared to the prospect of getting spectacular returns. Even when engaging other professional's help with investing, one also need to understand carefully how one's money is being invested and the possible worst consequence one can suffer should one's investment fails. There is nothing such as a "guaranteed returns on investment".

The best way to help oneself is to gain sound investing knowledge as this is an important lifelong skill that helps one to make sound investments with his hard-earned money. The best protection on one's investments is the investor himself. An investor who keeps improving his investment knowledgeable and excecutes sound investing principles and also tends over his investments cautiously is the one to grow his investment returns steadily.

<There is no excuse not to know anything about investing and rely on others blindly. The best protection on one's investments is the investor himself. To do so, the investor has to become knowledgeable and executes only sound investing principles to protect his investments.> 

<Never overestimate anyone's capabilities e.g. professional fund managers and including ownself. One basic investing principle is "To always understand fully what one is investing in." If failing this, it will be better for the investor not to invest than to risk investing in something he does not understand fully even if it is engaging other peoples' help with investing which does not guarantee anything at all since this will be a blind following what others talk up about a particular investment.> 

 

Case in point - I often wonder why people put in their hard earned money with fund managers when all they do is to help us lose money even faster?

 

Published July 25, 2009

Buying high, selling low Inability to resist the temptation to time the market's short-term swings has cost US mutual fund investors more than US$42b over the 12 months through May. By Mark Hulbert Email this article Print article Feedback Consider the domestic equity fund that, as at mid-2008, had the most assets under management, according to Morningstar: the Growth Fund of America, from the American Funds family. An investor who simply held the fund over the 12 months through May would have lost 31.4 per cent, Morningstar found. By contrast, it calculates, the actual return for the average investor in the fund was worse: down 32.7 per cent. Those are the most recent comparable returns of the Class A shares of the fund. The reason for this bigger loss was that the average investor had more dollars invested in the fund when it was declining than when it was rising. Morningstar determined this by studying inflows and outflows each month - how much new money investors put into the fund or how much cash they took out, and how the fund fared during that time. Armed with this data, Morningstar was able to calculate how much investors in the fund actually lost over those 12 months. Morningstar calls this number the fund's 'investor return' - in contrast with the 'total return', the number on which investors typically focus. In academic circles, these two types of performance measures are often called 'dollar-weighted return' (for investor return) and 'time-weighted return' (for total return). The gap of 1.3 percentage points between those two returns for Growth Fund of America Class A may not seem a big deal. But it adds up to a lot of money lost because of poor market-timing - more than US$1 billion over just 12 months in a single share class of one fund. Of course, not all fund investors were poor market timers in recent years. But the average investor was, according to Conrad Gann, chief operating officer at TrimTabs Investment Research of Sausalito, California. His firm's data show that mutual fund investors allocated more than US$300 billion in new cash to equity funds in the bull market of 2002 to 2007 - with much of it put into funds when the market was near its highs. But in the ensuing bear market, investors pulled out more than US$150 billion of assets - with the bulk of the withdrawals after the market melted down in September. In other words, Mr Gann said, the average investor bought high and sold low. What was the total cost of this poor timing? For stock mutual fund investors, it was more than US$42 billion over the 12 months through May, according to a Hulbert Financial Digest study of data provided by Morningstar. Could this recent experience be a fluke, a function of a bear market more severe than any since the Great Depression? A study that appeared in the September 2007 issue of the Journal of Banking and Finance has found that poor market-timing decisions are the rule rather than the exception. Titled 'Mutual Fund Flows and Investor Returns: An Empirical Examination of Fund Investor Timing Ability', its authors are Geoffrey C Friesen, a finance professor at the University of Nebraska, Lincoln, and Travis RA Sapp, a professor of accounting and finance at Iowa State University. The professors analysed investors' behaviour at all domestic equity funds from 1991 through 2004. They found that investors' poor timing decisions reduced their average returns over this period by 1.6 percentage points a year. This inability to time the stock market's short-term swings isn't limited to mutual fund investors. A recent study found that hedge fund investors, on average, may be even worse market timers. The study, 'Higher risk, lower returns: What hedge fund investors really earn', found that the dollar-weighted return of the average hedge fund is four percentage points a year below its time-weighted return. The authors of this study, which has been circulating since March as an academic working paper, are Ilia D Dichev, a professor of accounting at Emory University, and Gwen Yu, a doctoral candidate in accounting at the University of Michigan. One lesson to draw from these results is to resist the temptation to time the market's short-term swings, and instead to hold a chosen mutual fund for the long term. Both recent experience and longer-term historical studies show that such attempts at timing generally fail. -- NYT       LAST year, investors made a bad situation worse in the bear market by trying to time when to get into and out-of-stock mutual funds. As a group, they would have lost much less money had they simply held onto whatever funds they owned when the bear market began.