Did you ever hear the story about Fidelity’s audit of investment accounts their clients held between 2003 and 2013? The top-performing accounts were held by dead people!
While the second top performing accounts were held by people who’d forgotten they had an investment account!
Unbelievable, right? Well, sadly yes.
The story sprouted from a podcast on Bloomberg in 2014 where money manager James O’Shaughnessy mentioned this non-existent study a new employee had told him about. At the time O’Shaughnessy was talking to a financial adviser and Bloomberg columnist Barry Riholtz. It went like this:
O’Shaughnessy: “Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was…”
Ritholtz: “People were dead!”
O’Shaughnessy: “…No, that’s close though! They were the accounts people who forgot they had an account at Fidelity.”
Riholtz interrupted to clearly make a joke about the investors being dead and someone took it as fact. Next thing it was being reported that Fidelity had conducted this study and their best-performing clients were dead. Fidelity has been receiving inquiries about their non-existent study ever since. As they’ve re-iterated – it doesn’t exist.
So, in the age of the internet, it’s easy to see how fake news spreads and where common misconceptions emerge. However, there is a kernel of truth in the joke. Riholtz followed up by highlighting some not too dissimilar occurrences at his own firm:
“we’ve seen something similar with estate settlements where there’s a big debate or fight in the family and the money sits there for ten years while they work it out – that’s the best performance they’ve ever had because nobody’s touching it!”
And that is why people are so willing to believe the story. The living are generally bad investors! Tie their hands behind their backs for any period of time and they’ll inevitably get better investment returns. As the latest data from Dalbar’s Quantitative Analysis of Investor Behaviour shows.
Since Dalbar has been keeping record, the average US equity fund investor has never beaten the S&P 500 over any time period, nor has the average US fixed income fund investor ever beaten the benchmark bond index.
You may have heard great sportspeople described as “having more time” as an explanation of why they’re so much better than anyone else. You might otherwise describe them as not panicking when the pressure comes on. It’s similar for investors when volatility happens or a correction occurs – they lose sight of their available time and focus on the short term.
They look to sell out. Wait out the rough patch. Try to retime their entry. Panic again. Don’t get in or instead get out again. Finally, after the market looks safe or the guy on TV is talking about how the market’s going great guns, they get back in just as there’s another dip. All the time incurring taxes on any gains and churn costs on the buys and sells.
It’s why the S&P 500 offered investors 10.16% annualized over the past 30 years, but the average investor only took home 3.98% of it.
As far as the dead, while it’s not conclusively proven they’re better investors than the living, they do carry one very important investment skill – the ability to continually do nothing.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation, and individual needs.
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