An Argument for Patient Investing, in Pictures

Big mutual funds and financial services firms are putting a lot of focus on investor education these days. Davis Advisors has posted a piece aimed at encouraging long-term thinking called “The Wisdom of Great Investors” that provides a few interesting diagrams (below). Last week we wrote up a Merrill Lynch video also trying to calm still-skittish investors.

Two of the charts Davis created for their report were especially interesting.

The first contrasts stock fund assets flows (the gray line) with stock fund returns (the green and red bars).  This isn’t the first time we’ve covered the point that investors as a group have a bad habit of getting out of stocks when things are about to get better, and getting back in when they’re about to go down. (One earlier post on that topic can be found here.)

Still it’s a dramatic illustration.

Davis Advisors Source: Strategic Insight and Morningstar as of December 31, 2009. Stock funds are represented by domestic equity funds.

The second graph shows the down side of trying to time the market by charting 15 year average annual returns of the S&P 500 Index from 1995 through 2009 for an investor who 1) remained invested, 2) missed the best 10 days, 3) missed the best 30 days, 4) missed the best 60 days and 5) missed the best 90 days.

Source: Bloomberg and Davis Advisors.

This is a topic that recently was much debated over at The Big Picture, Barry Ritholtz’s blog. The point was made there that a relatively small number of days (10) make a huge difference (on the winning side and the losing side.) The core point of this illustration, though obvious, is that the more you miss the worse you do.

What do these pictures say to you?

One thought on “An Argument for Patient Investing, in Pictures

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