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In praise of the (above) average investor
[Download Printable White Paper]
Open the financial section of any newspaper or magazine and you'll see frequent (and frequently condescending) references to a mysterious individual
known as the "average investor." Who is this person?
Is he related to you?
If truth be told, most analysts and brokers don’t think
too highly of the so-called investor on the street. And
they don’t bother to keep this low opinion to themselves.
Here’s one typical quote from a recent issue of Barrons:
"Considering that the masses’ general investment
knowledge could be writ large on the head of a pin
(professional investment advice is essential)."
Here are other sentiments from the web sites of national
brokerage firms:
"… the average investor's own behavior is an
impediment."
"… the average investor is too susceptible to a good
sales story or a hot stock tip."
Even the eminently fair-minded David Swensen,
legendary manager of the Yale Endowment Fund, says
with a shrug: "The likelihood of ever producing a nation
of effective individual investors … seems small."
The consensus view on the floors of trading rooms is
that non-professionals can’t fathom all the intricacies
of successful investing, nor can they be trusted to follow
the imperatives of long-term performance. They must
be spoon-fed the basics and patiently cajoled to the
correct decisions.
As a result, many marketers "talk down" to investors.
Complex concepts are over-simplified; returns are
reported like basketball scores; Advisor opinions are
presented as holy writ.
To that we say: baloney.
Knowledge is confidence. Our experience is that most
educated investors crave reliable information. That’s
what we’re committed to providing you at thehollandportfolios.com –
balanced, reasoned and usable information to enlighten
your investing choices. Naturally, we don’t expect you
to be conversant in all the details of arcane financial
models, any more than you would expect the Advisor
to claim expertise in medicine or law. We recognize
that you are successful at your own chosen career.
Investing happens to be ours.
Mutual respect should prevail. We’ll never shortchange
you on facts, or sugarcoat market realities.
The real truth is, on more than one occasion in the
past decades it was active-management professionals
who panicked – dumping whole equity sectors at the
first sign of trouble – while unsung amateurs steadied
the boat.
Which brings us back to the original question: who is
the average investor? A recent Harris Poll provides
some clues. Taken as a whole, respondents said they:
Started investing at age 30.
Now have $62,400 in individual stocks; $95,000 in
mutual funds.
Typically hold an investment (a stock or fund) for
7.8 years.
(cont.)
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