Chart of the Week: Stop being Average

We couldn’t help but notice something significant missing from Bob Doll’s chart which is making the rounds. No, not that Bob Dole – the one from Nuveen Investments. We stumbled across the below chart that’s up on Business Insider and the Reformed Broker Blog to name a few, and it looks at the 20 Year annualized returns by asset classes dating from 1992-2011 as well as what the “average investor” has made. Ignore for a second that this data is 2 years stale… it has a bigger problem in our view – managed futures wasn’t included.

Average Investor Returns(Disclaimer: Past performance is not necessarily indicative of future results)

Where does the other alternative investment rank? A few clicks in excel and voila – the adjusted chart:

20 Annualized ReturnsSource: Barclayhedge’s BTOP 50 Index
(Disclaimer: Past performance is not necessarily indicative of future results)

Now – the point of this chart (and likely why it doesn’t matter that it’s two years old) is not to show how well REITs did, or how weird it is that REIT’s did that much better than the median home price – but rather to show the quite disturbing plight of the “average investor”, who despite the best intentions ranks at the very bottom of this list. We could likely recreate this list with the average hedge fund investor versus the various hedge fund category returns – the average managed futures investors versus the various managed futures strategy types… and so on – and get the same result.

Why? Why does the average investor end up doing so poorly? Their emotions – and specifically the emotions of fear, greed, and utter panic, are the likely reasons behind this discrepancy. People like going with a winner, and our innate fight or flee instinct tells us to get rid of or avoid losers. But these instincts can be an investor’s worst enemy, when it is more often than not the better choice to invest today in what didn’t work yesterday, and stop (or lower) your investment today in what did work yesterday.

It doesn’t make any sense to our hardwired brains – and perhaps the reason there is such a thing as market cycles and reversions to the mean is exactly because we are all wired in this way.  So next time you’re looking at the new fund which has been up for three straight years with low drawdowns and high returns, or the next time you’re ready to ditch the well thought out, well executed investment thesis which hasn’t been performing of late (ah hmm…managed futures), take a look at the chart above and ask yourself whether the in at the top, out at the bottom investment method is the reason the average investor underperforms the very things they are investing in.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.