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  • My Genes Made Me Do It!

    For many years, I have written about the Dalbar Organization's Qualitative Analysis of Investor Behavior (QAIB) study. Now in its 15th year, this study has consistently documented how investors' returns do not match those of the major market indexes because investors constantly jump from one hot investment to another. While Dalbar showed us how investors returns suffered, we were left wondering why investors acted as they did.

    The answer to the 'why' question may now be found in a recent study showing the part genetics play in a person's investment behavior. The 'Nature or Nurture' study found that up to 45% of a person's investment behavior may be attributable to genetics. Some genetic influences are good while others are not. The Nature or Nurture study also found that genetic investment behavior can persist even after considerable investment education. In other words, nature trumps nurture.

    I recognized long ago how some investors can be their own worst enemies, and now I know that their genetics are likely at fault. Fortunately, I developed a way to overcome some of the detrimental genetic behaviors long ago. If you've ever made a bad investment decision and kicked yourself later on for doing so, you need to read this week's E-Letter.

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  • Dalbar Update: Investors Still Lagging The Market

    The Dalbar organization recently completed the 15th update of their landmark Quantitative Analysis of Investor Behavior (QAIB) Study. As long-time readers know, I have often quoted statistics from these annual updates that show average investors receive inferior long-term returns when compared to gains posted by stock and bond mutual funds. The reason, by and large, is that investors switch from fund to fund chasing hot returns. In doing so, they often end up with low returns, and sometimes even losses. Most interesting, however, is that the 2009 Dalbar QAIB Study update finally comes to the realization that traditional buy-and-hold approaches do not work, and that investors continue to panic and trade out of stocks when losses run high. In other words, emotions often trump rational investor behavior. This week, I'll update you on the most recent Dalbar Study findings, and also discuss our solution to emotional trading that we discovered back in 1995.

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