Ritholtz: Midyear Questions for Disappointed Investors: What Went Wrong?
With the second quarter behind us, investors are evaluating how well their holdings have performed. The midpoint of the year is as good time as any to evaluate what you did right or wrong in a very challenging year.
Given how much panic selling we saw at the end of March, there surely are quite a few people who are disappointed with their results. If you are one of those folks, now is the time to determine where you went off track.
Rather than tell you what you did wrong, ask yourself these questions. Your answers will help send you in the right direction:
No. 1. What is my investing philosophy?: It may be a basic question, but it is one some people skip: Am I an active investor, hunting for alpha (market-beating returns), or am I a passive indexer, content with beta (market-matching returns)? For those trying to beat the market, are you succeeding? If you are, then congratulations! You're one of the few. But ask yourself this: Is your process repeatable and reliable, or did you just get lucky? This question remains one of the most challenging in all of active management.
About 40% of active fund managers manage to beat their benchmark in any given year, but net of costs and fees, almost none does so consistently over 10-year periods.
If the active approach isn't paying off, another question awaits: Would you be better off in the long run embracing a low-cost, passive indexing strategy?
No. 2. Where did I go wrong, and how am I tracking it?: Be like Ray Dalio: Don’t hide your errors, but embrace them as a way to become a better investor.