Sunday, October 31, 2010


The WSJ (hat tip The Big Picture) with some faulty numbers:

Advisers, too, have been buying higher and selling lower. Those who use TD Ameritrade had an average of 26% of clients’ assets in bonds and cash on Oct. 9, 2007, the day the Dow Jones Industrial Average hit its all-time high of 14164.53. By March 9, 2009, the day the Dow scraped rock bottom at 6440.08, the advisers had jacked up bonds and cash to 51%.”
Barry piles on:
The simple explanation is that advisers (or at least the bulk of them) are reacting emotionally to market swings. They are over-confident after markets have had big moves up, so that’s when they buy; they dump equity shares in a panic late in a down turn.
Does Ameritrade even provide investment advice? Either way, the numbers shown above don't exactly make the case that these investors were buying high and selling low.


First take a look at performance of equities and fixed income since that October 9th period.

The relevance?

Ameritrade investors weren't buying high and selling low, they were doing what investors have been told to do... "buying and holding". A passive investor with a 26% allocation to fixed income (i.e. the starting point) would have had a 47% allocation to fixed income on March 9th, 2009 (equities sold off more than fixed income, thus increasing the allocation to fixed income). Very close to the allocation detailed in the WSJ article.

So rather than an article that headlines why investors should be wary of advisers because they are over-confident, perhaps the data shows that investors should simply have advisers that aren't scared to provide advice and can share one of the easiest investment lessons... the power of rebalancing.

Source: Yahoo Finance

1 comment:

  1. Nice work actually graphing it (and thanks in general for your useful graphing efforts, by the way).

    Barry seems to repeatedly fall for these 'cash on the sidelines' type myths, even after I and other commenters have pointed the fallacy out to him in comments. He claims he only uses them as sentiment indicators but then goes on to make comments like the one you quoted. Very strange.