While reading the newspaper recently, I found that for the 48th Sunday Journal Investment Dartboard Contest someone throwing darts at a listing of stocks was able to outperform specific stock picks of Wall Street Journal readers for the six months ended 12/31/12. The readers’ picks lost about 11% while the stocks chosen by darts thrown at stock pages gained 7.2%.
The results of this contest seem to confirm the Dalbar Study finding that the average investor achieved an annual return of 3.49% for the 20 years ended 12/31/10 while the S&P 500 returned 7.81% per year during the same time frame. Much of the significant underperformance of investors can be attributed to emotional investing and attempting to time the markets (something no one has been able to perfect, to my knowledge).
We feel it’s all about a low-cost, broadly-diversified, passive investment approach and methodically investing over time. This is why DFA is such a great fit for our client portfolios. Reduce your risk and take what the market has to offer (in terms of returns) over time–a winning long-term combination!