Which asset class has served the investor best in the last 20 years?

If you refer to the chart above, you’d find that the question is irrelevant; for the average investor has achieved the worst return compared to all the major asset classes.

Given this stark underperformance, it’d be wise to explore the cause of such a substantial handicap to the average investor.

This article will unveil the reason which is the second P of this series – Perception.

Frank Holmes mentioned: “(q)uantitative analysis of investor behaviour, conducted by research firm DALBUR, has shown time and again that everyday retail investors regularly lag the market, in good times and in bad, by an alarmingly wide margin. This is due mainly to bad timing – after missing the rally and buying at the peak, many investors (subsequently) tend to sell at the absolute worst time1 (as the stock market turns down).”


Rise in price = good in value?
Many often perceive a rise in asset price to mean that it is a good asset; and when the asset

price falls, it is a bad one. They will then laugh with joy when the former happens and in the latter, panic about assets losing “value”.

Consider this: When a Louis Vuitton bag or Rolex watch you’ve been eyeing goes on a discount, are you delighted or miserable? Does the discounted price determine its value? Or does the value stay the same, and you are just paying less in price for it?


Dispelling the myth

It is the same with investment. Instead of doom and gloom when you hear news of dropping stocks, this would become music to your ears : “Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume – the fourth day in a row that stocks have gotten cheaper. Tech investors fared even better, as leading companies like Microsoft lost nearly 5% on the day, making them even more affordable2.”

If it is a valuable or good stock, when the price goes down 10%, you are actually buying in the investment at a 10% discount.

As an investor, there IS a fair value to invest. So, if you are investing for a lifetime, it is quite irrational to wish that the price that you can buy in keeps going up.

One of Benjamin Graham’s most powerful insights is this: “The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.” He meant that the intelligent individual investor has the full freedom to choose whether or not to follow Mr Market (and all its noises). You have the luxury of being able to think for yourself2.

Marcus Aurelius said: “The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts2.”

Perceive the difference between value and price: a lower price can often mean better value and an attractive opportunity to invest.



1.A CEO blog by Frank Holmes, Frank Talk

2.Benjamin Graham, The Intelligent Investor


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