Got the Message?
Synopsis: In previous centuries, it was common to get news late, if it all. Investors today have all the technology in the world and news at their fingertips. Yet, to their detriment, they still act on old information.
The heat of August fell heavily on London, windows thrown wide at White’s to catch the failing breeze. Outside a coach and four rumbled by on Chesterfield Street in the Mayfair neighborhood of the west end, kicking up choking dust in its wake.
Inside, White’s patrons were the upper crust of English nobility. Here they gossiped, gambled, took tea or strong drink as the murmur of conversation drifted out the open shutters. Some sat down to a robust dinner of grouse, partridge and smoked trout, chased with claret streaming from silver capped decanters. The latest vintage was a particularly good one, it seemed. After dinner, a few would pick up copies of the London Gazette lying about with the day’s date: August 10th, 1776.
At a table for four, just ending their supper, the Third Viscount sighed. “It might have been an altogether pleasant summer, if not for those damnable shopkeepers and pamphleteers in New England.” He dripped sarcasm at the last. “Representation in Parliament? Are they daft?”
“A few well-timed hangings should put things to rest.” The young Earl stifled a belch and asked the table: “You’ve read Gibbons, no doubt?” Edward Gibbons, Decline and Fall of the Roman Empire had been published that summer to good reviews and might have served well for those inclined to think deeply about empires, created and lost.
The avuncular Baron smiled patiently. “Lose your civic virtue, allow any bloody barbarian to govern and lose your empire. Fairly obvious stuff, isn’t it?” The irony of an English author writing about the dissolution of an empire was apparently lost on British subjects. But not for long.
The Duke, growing bored with the drift of conversation reached for the paper. His eyebrows lifted and then he was out of his chair, exclaiming: “Listen to this nonsense… from Howe in the Colonies! He says, ‘I am informed that the Continental Congress have declared the United Colonies free and independent States.’ The damn shopkeepers mean to be independent of us!”
The group grew quiet for a moment. It was up to the army now. The Third Viscount yawned. “Billiards gentlemen?”
Yes, news of the Declaration of Independence, signed in July, had reached the British government and citizenry six weeks later. And though it took years of bloody combat, these truths became self-evident: Britain was an empire in decline and America one on the rise. Take that Gibbons!
Even today with our fancy technology, investors still, like the British, tend to get messages late. But instead of shrugging and heading off to do something else, they act on this lagging information. Here are a couple of 21st Century examples:
Better late than never you say? Not so much. Such behavior contributes to the gap between investor returns and those of the broad market, which is significant. Stock investors over the last 20 years have averaged 4.67% annualized returns, while the S&P 500 has risen 8.19% annually. Bond investors fare even worse, earning 0.51% annualized while the Barclays Aggregate Bond index rose 4.51% per year. DALBAR who runs this study notes that: “Analysis of the underperformance shows that investor behavior is the number one cause…”
Remember that average returns over time include a lot of ups and downs. Too many investors think that short term down periods will ruin their opportunity to get returns anywhere near long‐term averages. But the opposite is more accurate. Trying to avoid short term volatility leads to underperformance. That is the truth, but apparently it isn’t all that self-evident yet.
Photo: Bing.com Images- Free to Share & Use
Links to Sources:
Don't wait for history to happen...