Every year, Dalbar, Inc updates its Qualified Analysis of Investor Behavior (QAIB) Study. Just like clockwork, this study shows that, in general, the average equity and bond investor receives a return far lower than that of their benchmark indexes. The apparent reason, at least according to Dalbar, is that investors tend to switch from fund to fund chasing returns, too often buying high and selling low.
As you might suspect, the buy-and-hold crowd loves this Study, saying that it proves the value of passive investing. In Dalbar’s world, simply investing in a low-cost index fund buying and holding it no matter what is the “smart” thing to do. Dalbar has produced and updated this study since 1994 without much pushback, at least not until now.
In a recent article entitled, The Fallacy behind Investor versus Fund Returns (and why DALBAR is dead wrong), mathematician and economist, Michael Edesses takes on the Dalbar QAIB Study and challenges its buy-and-hold conventional wisdom. According to Edesses, “…there is no way to determine if investors underperform the mutual funds they own, either because of bad timing or for any other reason.”
For many years, the QAIB Study has been used to call market timing and other active investment strategies into question. “Better to sit and take whatever the market throws at you rather than time the market,” they say. Edesess’ analysis, on the other hand, says that there will always be a substantial difference between investor and index returns, but that it’s impossible to tell how much, if any, of this difference is attributable to poor market timing by investors.
This article is a must-read for anyone who actively manages portfolios on their own or on behalf of clients. While you may not agree with all of Edesess’ claims, the article is important because it calls into question a bit of conventional wisdom that has been accepted as gospel since 1994. Of course, the buy-and-hold crowd will not let the QAIB Study go gently into that good night, but we now know that the math doesn’t necessarily support their favored conclusion.
Announcing More Strategies Being Now Being Tracked by Theta
Existing Investment Managers Marty Kerns and Parker Binion of Kerns Capital Management have added the KCM Valarian Four Seasons strategy. Theta Research has verified the track record of the Four Seasons Strategy back to its original inception date of April 1, 2016.
Another existing Investment Manager, Dr. Gary Harloff of Harloff Capital Management, has added two more strategies under his University Beta Strategies™ series. The new strategies are US Dollar and Fully Diversified, bringing the total number of Dr. Harloff’s tracked strategies to ten. Theta Research began tracking these strategies as of their original inception dates in June and July of this year.
New Investment Manager, David T. Bush, Managing Member and CIO of ALPHATATIVE, LLC. Located in Beavercreek, Ohio has initiated tracking of his award-winning Stratversify® Strategy. This model recently won the National Association of Investment Managers (NAAIM) “Shark Tank” Competition as well as BattleFin’s “Sharpe Ratio Shootout.” Theta Research has verified this strategy’s actual performance back to its original inception date of March 20, 2011.