Everybody knows the last decade on Wall Street was a poor one for investors.
Turns out it was even worse than we'd thought.
A remarkable new study from TrimTabs Investment Research shows that regular investors needlessly lost billions more than they should have on the stock market. Why? It's the old story: They invested more money in their equity mutual funds during the booms . . . and then sold them during the panics.
So even though Wall Street overall ended the decade pretty much level (when you include dividends), average investors lost a bundle.
TrimTabs puts the losses at $39 billion. It calculates that mutual fund investors bought into the Standard & Poor's 500 Index ($INX) at an average of 1,434. That's close to its record high of 1,565. If investors had invested at random times instead, the average would have been 1,171.
So even though the stock market today is around its 10-year average, TrimTabs reckons most of those who invested during the decade are actually sitting on hefty losses.
What does this dismal news mean for you, the investor, now?
Oddly enough, it means almost exactly the opposite of what Wall Street is going to tell you it means. The Wall Street crowd will say, as usual: "See, you can't time the market! Just like we told you! So just give us all your money, and just go with the flow."
That this line happens to serve the economic interests of Wall Street is, of course, a pure coincidence. Yet the TrimTabs numbers show, instead, that over the past decade it was actually quite easy to time the market. All you had to do was buy when the public was selling and sell when the public was buying.
Naturally, going against the crowd is easier said than done. That's why the best professional investors like to say that successful investing is "simple, but it isn't easy."
Human beings are hard-wired to run with the herd. For millions of years, when the herd stampeded, the smartest move wasn't to hang around and wait to see why. It was to run.
And that's how investors act on the stock market as well. But when it comes to investing, it's a bad idea. Feelings are a bad guide. And there is no safety in numbers.
I am frequently surprised at how many people still give in to their instincts in these matters. During the housing boom, anything I wrote questioning house prices automatically drew scathing reactions. Today anything I write that is positive about buying a home draws a similar response. (I'll confess this alone makes me feel bullish.)
Continued: Our feelings are terrible guides
