Investment Research - The Dalbar Study

Very few people, even professionals, have heard of the Dalbar Study that originated in 1995. Its purpose is to determine the profitability of trading for the small investor of mutual funds. Their results are even worse than I thought.

The BuyNHolders will love the results as it "proves" that buying and holding is better than trying to switch to so-called "hot" funds. My readers know I think that mindless buy and hold is a guaranteed loser - and I can prove it.

During the greatest bull market of all time from 1984 to December 2002 the study came up with an annualized return of 2.57% compared to 12.22% for those who bought and held an S&P500 index fund. These dummies did not even keep up with inflation. The reason was they were switching from fund to fund after it had made its major move and they had no exit strategy if it did not make money.

I would guess it that they paid commissions which immediately put them in the hole. My recommendation is never to buy anything except a no-load mutual fund that does not have a redemption fee.

They also did not have a method to buy a fund with an excellent performance, but also had no plan as to when to sell. Every successful professional trader will tell you that you must have an exit plan as soon as any purchase is made. During any bull market there will be rotations among sectors. During periods of time, usually about 6 to 10 months, a particular sector will outperform all the others. For example, Asian funds might do well for 6 months and then fade, internet funds will do well for 10 months and then telecommunications will take the lead, and so forth.

A sector will do well and as more and more people find out about it the value of the stocks within that sector run to their valuation peak and go no further. That sector runs sideways or starts to fade.

Very few investors realize that mutual funds will only make money during a long term bull market. That bull ended in 2000. Going back in history as far as you want to you will find that every bull market has been followed by a bear market of equal length. During these bear periods there will be short-term opportunities to buy, but they must be held for only brief periods. The key to these is learning to time the market and pick the strongest sector funds. You can learn to do it on your own or subscribe to a proven timing service.

To me the Dalbar Study has proven that you (not your broker or financial planner) must learn market basics if you plan to profit from the stock market.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

[email protected]; 1-888-345-7870

In The News:

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Is it time to stop investing in equity mutual fund schemes?  Economic TimesIt is difficult to predict the market but many pundits feel it clearly needs some firm signal from the govt.
MF shopping list: Top 30 stocks that fund managers bought & sold in June  MoneycontrolMutual funds increased allocation to private banks, consumer, utilities, technology, NBFCs, retail, metals and PSU bank stocks in June, an ICICIdirect report said.
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What India's three largest mutual funds bought and sold in June  Economic TimesHeres what the top three asset managers bought and sold last month.
Why picking the right mutual fund is key in a tough market  LivemintWhy have mutual fund (MF) returns fallen? Mutual funds primarily invest in equity (stocks) or debt (bonds). On the equity side, mid and small cap MFs have given ...
When equity mutual funds offer negative returns, here’s what you do  Economic TimesThe need of the hour is to stay insulated from the panic in the market.
Consider investing in direct stocks only if you can monitor portfolio proactively  LivemintDirect stocks can be considered if you have the ability to do research to identify the stocks to be bought as well as to be sold.You should be revisiting your ...
Top 30 stocks that fund managers bought & sold in July; do you own any?  MoneycontrolMutual funds net bought Rs 14,846.75 crore worth of shares last month. Their inflows into equity funds also improved to Rs 8,113 crore in July, rising nearly 6 ...
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Why you should invest in multi cap mutual funds  Economic TimesMany advisors are recommending multi cap funds in the current environment to investors. This scheme which bundles large-, mid- and small cap stocks is often ...
What India's top three mutual funds bought and sold in March  Economic TimesIndias largest money manager held 1.5 trillion rupees in equities.
Sensex's rise from 20K to 40K: 5 lessons for equity mutual fund investors  Economic TimesWe look at some critical lessons that equity fund investors learnt during the journey of Sensex reaching 40K.
Flows into mutual funds revive in May as Modi win seems to spur risk demand  LivemintFlows into Indian equity mutual funds in May rebounded from the smallest in 31 months as Prime Minister Narendra Modi's comfortable electoral win spurred ...
Here are a few mutual funds that stocked up on YES Bank in Q4FY19  Business StandardShares of YES Bank tanked 30 per cent in trade on Tuesday, after the bank reported a massive Rs 1,507 crore loss in the fourth quarter of financial year 2018-19 ...
Mutual funds bet big on these 30 stocks in November; do you own any?  Moneycontrol.comThe Indian equity market rose about 5 percent in November but what was more heartening to see was inflows into mutual funds. Investors pumped Rs 1.4 lakh ...
Mutual fund investors showing great appetite for assuming risk: Dhirendra Kumar  Economic TimesOne would have thought that new investors who came into mutual funds will be running away. But they are getting into riskier category of funds and the scale of ...
Actively-managed large cap mutual funds poised for a comeback  Economic TimesDefying predictions of their imminent irrelevance, some actively-managed large cap mutual fund schemes have bounced back to the top of the return chart.
6 bad money habits that investors should give up  Economic TimesSome habits can exact a heavy toll on your finances. We look at a few common ones that you should give up.
Mutual funds shooting themselves in the foot?  Economic TimesWhat if banks take a leaf out of Kotak and HDFC Mutual Funds' decision to direct investors to come another day to get their money instead of paying them on the ...
How concentrated is your mutual fund portfolio?  LivemintA concentrated portfolio can backfire badly if the fund manager's strategy goes wrong.A portfolio with few stocks can fall sharply if share prices of most stocks in ...
Mutual fund SIPs don't make equity investing risk-free. Here's why  Economic TimesSIPs do reduce the risk of market timing & allow investors to buy more units when their price falls.
A young investor’s guide to mutual funds  Economic TimesMany young investors, who are barely a year or two old in their career, are eager to start investing in mutual funds. ETMutualFunds.com receive many queries on ...
Is it time to switch to index mutual funds?  Economic TimesBy Rishabh Parakh It is one of the hottest topics debated these days: is it time for mutual fund investors to switch to passively-managed index funds from their ...
What India's top three mutual funds bought and sold in May  LivemintInflows into Indian equity mutual funds in May rebounded from the smallest in 31 months as Prime Minister Narendra Modi's comfortable electoral win spurred ...
Top 25 equity mutual funds failed to deliver positive returns in June  Economic TimesNEW DELHI: Top 25 mutual fund schemes, managing retail money in excess of $1 billion (Rs 7,000 crore) each, failed to deliver positive returns in June.
Stay away from stock tips  LivemintIf taming the stock market was easy, everyone would do it.Losing money in market is real and facing volatility is part of the deal.
SIPs in equity mutual funds are giving negative returns. What should you do?  Economic TimesSIP returns for many investors in mid- and small-cap funds in the last one year are negative after the sharp market correction. The key is to choose a fund wisely ...

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