Singapore 15 Feb 2021
Presenting ‘2020 — The Movie’
The ‘movie’ above shows total returns (including dividends) made by investors since January 2020. The S&P 500 chart on top shows a rolling 3 month time-slice and the scatter plot below shows the returns/volatility of the Equities + Equity Fund components of investor portfolios during that same period.
The ‘opening scene’ of the movie is as expected. We had seen a sharp Covid related fall during Feb-Mar and every investor got caught on the wrong foot (average return of -27.5%). The ‘closing scene’ was completely opposite, as investors actively participated in the rally since Nov and scored an average 17.5%.
The ‘average’ investor has beaten the market in 2021
Generally accepted wisdom says that the average investor cannot beat the market. This is considered to be especially true of a liquid market. Therefore, as I was crunching these numbers over the weekend, I was expecting to see our data point to the same conclusion. My null hypothesis was that investors would have got whipsawed and generally made poorer returns than the S&P 500.
In a very Michaelson-Morley experiment type situation (where scientists were trying to demonstrate the existence of luminiferous aether, but ended up proving the opposite) our data says that investors did okay. Instead of a massacre, average performance was in line with market in 2020. And (drumroll please) there is clear outperformance in 2021.
The S&P 500 has done 4.7% so far this year, but the average investor has almost doubled the returns at 9.0%. While one can argue that this is early days, and 2021 has been only 6 weeks, this outperformance has been going on for the last 6 months (average investor return of 25.2% as compared to market return of 16.4%)
Profit Taking on HKD stocks
In HKD stocks (which is our proxy for the China market) we saw Investors selling even as prices rose sharply. This could mean that investors were taking profit and exiting the market, but it could simply also be reduction in positions before the long Chinese New Year break. Therefore we will watch for another week or two before deciding on whether to change our investor sentiment indicator. See chart below
For those who are curious, we saw net buying resume in USD denominated Equity Funds/ETFs last week. It remained flat on USD denominated direct equities.
- Investor returns during most of 2020 were in line with market, but there has been clear outperformance since the last 6 months
- Investors in HKD denominated stocks were selling before the Chinese New Year holiday, even though the market was rising sharply. Whether this represents a change in sentiment, or was just position adjustment before the long holiday, remains to be seen.
Please note that this newsletter is just a data analysis of actual investor behavior and does not constitute investment advice in any form.