What caught my eye this week.
I can’t really believe the chart below from JP Morgan that circulated around financial Twitter this week.
US investors are seemingly so prone to woefully bad attempts to time markets and other kinds of trading mishaps that they earned just 2.9% annualized over the past two decades:
[1]
Source: Alan Smith [2]
That’s barely ahead of cash.
Hey, Mr Average Investor
Reading the small print reveals the graph is based on data from Dalbar Inc. That company’s work has foregrounded the so-called ‘behaviour gap’ for many years.
The behaviour gap describes how poor active choices by investors – such as trying to time markets, or to chase hot investments – means that most ultimately receive a far lower return than the broad asset class data implies.
The Dalbar study is also subject to regular debunking [3]. I’m not even sure where we are with that right now. But JP Morgan apparently believes Dalbar is still credible.
Or maybe JP Morgan has something to sell. Unfortunately I don’t have access to more than that screenshot, so I can’t give you its official pitch. Perhaps it’s taken from Why You Should Entrust All Your Money To Us To Manage, Mortals, where it’s presented as evidence? Who knows.
What I can say is that if the average investor in conventional assets has really seen just a 2.9% return over 20 years, then you can see why so many of them chased rock JPGs and SPACs and GameStop [4] at the height of the bull market in 2021.
I mean, what did they have to lose?
(Okay, apparently 2.9% a year.)
We can do better guys! Read [5] my co-blogger The Accumulator and do as he does. Or do as our model passive portfolio [6] does. That’s nearly 9% a year over the past 11 years, with just a handful of trades per quarter.
Or invest in an all-in-one index fund. Anything but 2.9% a year.
Have a great weekend all!
From Monevator
FX fees on investments, and how to crush them – Monevator [7]
Mortgage risk: a checklist – Monevator [8]
From the archive-ator: Are you richer than your kids, or poorer than your grandkids? – Monevator [9]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [10]
UK interest on debt payments hits record £7.6bn in May – Guardian [11]
While inflation now at 9.1% as prices rise at fastest rate in 40 years… – BBC [12]
…leading shoppers to set a £30 limit at the till and other behaviour changes – BBC [13]
…and sinking UK consumer confidence to a record low – EuroNews [14]
Payment Systems Regulator to investigate post-Brexit card fees – PSR [15]
Bank of England withdraws mortgage affordability stress test – Reuters [16]
Ray Dalio says stagflation is coming – Institutional Investor [17]
[18]
Fear of death tends to decline with time, and other interesting findings on aging – AARP [19]
Brexit gonna Brexit mini-special
A candid assessment of Brexit from a Leave voter, six years on – The Independent [20]
The deafening silence over Brexit’s economic fallout [Search result] – FT [21]
LSE: Brexit hit UK’s competitiveness, reduced productivity, and lowered Brits’ real wages – CityAM [22]
The Brexit dividend will be higher inflation risk for years to come – Bloomberg [23]
Products and services
Cheapest mortgage deals revealed as rates continue to rise – Which [24]
Nationwide revives 5% rate on [limited] current account balance, plus cash bribe – ThisIsMoney [25]
Open an account with InvestEngine via our affiliate link and get £25 when you invest at least £100 (new customers only, T&Cs apply) – InvestEngine [26]
100 98 days left to use your £20 and £50 banknotes – Bank of England [27]
Ten-year fixed-rate mortgages now ‘incredible value’ – Guardian [28]
Beware the new ATM scam where crooks can steal your card details in minutes – ThisIsMoney [29]
Topsy-turvy homes for sale, in pictures – Guardian [30]
Comment and opinion
Where does the wealth go when asset prices drop? – Noahpinion [31]
Volatility in your pension isn’t the risk you should worry about – Financial Bodyguard [32]
10 years of fake retirement later – Financial Samurai [33]
Former Tory minister calls 10% rise in state pension ‘ludicrous’ – Guardian [34]
So bad it’s good: three reasons to be bullish… – LPL Research [35]
…and six more things that might go right – Validea [36]
Rising interest rates are ending an era where the rich got much, much richer – The Atlantic [37]
12 paradoxes of investing – Humble Dollar [38]
How exposed is the UK as inflation spirals the cost of government borrowing? – Proactive Investors [39]
Reverse-engineering the path to making $1 million a year – Banker on FIRE [40]
10 years of leisure wrested from The Man – Simple Living in Somerset [41]
Think outside the portfolio – Of Dollars and Data [42]
Rental houses versus stock market investments – Mr Money Mustache [43]
The billionaire investors bickering show is back [Podcast] – All-In [44]
Larry Swedroe: how to use and not abuse the Shiller CAPE ratio – TEBI [45]
Bear markets are a test of investor emotions – Behavioural Investment [46]
The eye of the storm – Young Money [47]
Bond bust mini-special
When bonds do not hedge stocks [US but relevant] – Morningstar [48]
Has the bond crash done enough to make them attractive again? – Institutional Investor [49]
Are TIPS broken? [US but relevant] – Eversight Wealth [50]
Crypt o’ crypto
Bitcoin whale Michael Saylor urges governments to regulate crypto’s “parade of horribles” – Yahoo [51]
First short Bitcoin ETF listed on the NYSE – Coindesk [52]
Naughty corner: Active antics
Managing a SIPP in drawdown: 10-year update – DIY Investor UK [53]
A summary of High Returns for Low Risk [54] by Pim Van Vliet – Novel Investor [55]
Should you buy Rio Tinto for its 17% dividend yield? – UK Dividend Investor [56]
An interview with thoughtful active investor Guy Spier [Podcast] – I.C. via Youtube [57]
And with Mohnish Pabrai, with lots on Charlie Munger [Podcast, forgot to link last week] – TIP [58]
In quarantine
Covid rates continue to rise; one in 35 had it last week – BBC [59]
Polio virus detected in London sewage samples – BBC [60]
How the monkeypox epidemic is likely to play out, in four graphs – The Conversation [61]
Vaccine Damage Payment Scheme: the battle for compensation – BBC [62]
Kindle book bargains
Find Your Voice: The Secret to Talking with Confidence by Caroline Goyder – £0.99 on Kindle [63]
Ultralearning by Scott Young – £0.99 on Kindle [64]
The Dealmaker: Lesson’s From a Life in Private Equity by Guy Hands – £0.99 on Kindle [65]
Think Like A Rocket Scientist by Ozan Varol – £0.99 on Kindle [66]
Environmental factors
A floating city in the Maldives begins to take shape – CNN [67]
Wet Wipe island has “changed the course of the Thames” – via Twitter [68]
UK chemicals plant ready to start carbon capture rollout – Guardian [69]
Controversy grows over whether Mars samples endanger Earth – Scientific American [70]
French and Belgians eating wild frogs to extinction – Guardian [71]
Off our beat
Inside the secret, often bizarre world that decides what porn you see [Search result] – FT [72]
A brief history of the shipping container – Hakai Magazine [73]
Experience: I lost my eyesight overnight – Guardian [74]
Amazon readies Alexa to mimic a deceased loved one’s voice – Gizmodo [75]
The summer of a thousand goodbyes – Finding Joy [76]
‘Mid-century millennial’: the ubiquitous look of a generation’s homes – Guardian [77]
Over half of Africa’s young adults want to emigrate – Quartz Africa [78]
And finally…
“The more we tie our happiness to things that we cannot control, the more we subject ourselves to the negative volatility of the outside world. Therefore, we need to be mindful in setting our goals.”
– Vitaliy Katsenelson, Soul in the Game [79]
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