We had the pleasure to attend a presentation last week by one of our favorite fund managers, Christopher C. Davis of Selected American Shares (http://www.selectedfunds.com/). To underline Chris's credibility, the Davis family, Davis Advisors and their employees and directors have over $2 billion invested in their fund.
Chris presented information from a March 2010 study by Dalbar, Inc. that showed for the period of January 1, 1990 to December 31, 2009 the average stock fund returned 8.8% per year while the average stock fund investor earned only 3.2%. The 5.6% differential is attributed to behavior of the average investor buying and selling at the wrong time.
The comment that put all in proper context was when Chris discussed how as a portfolio manager he worked with the goal of selecting stocks in such a fashion as to beat the S&P 500 by 1% to 1 1/2% per year. Chris wanted all in his audience to understand that while he would constantly work to pick stocks that would beat the averages, the real opportunity to improve investor returns was in improved behavior. Well said!