One of my favorite finance journalists and authors is Jason Zweig of The Wall Street Journal. He writes a weekly column called “The Intelligent Investor.” If you don’t read it regularly, I highly recommend you do.
His most recent column written on February 27, titled “The Pros Have to Sell Stocks Now. You Don’t.” puts forward a unique, and somewhat unexpected, perspective informed by a 2002 study by two professors. Their research showed:
- Professional investors sell more (and faster) than individuals do when there’s a large market drop
- Stocks that are widely held by large investors show greater trading volumes during sharp market drops; and
- Stocks sold by big investors during these down days tend to outperform the market over the ensuing six months. (But remember, past performance is not a predictor of future performance).
To sum it up, he writes that “Patience is a luxury that individuals can afford.”
So that got us to thinking. What does our data show over the past few days of hard market selloffs? Does it align with what Mr. Zweig suggests? How are M1 investors approaching the recent down days in the market? Are they remaining patient? Or not?
We examined investment contributions (not including account transfers) and withdrawals (not including transfers) over the past three days (Monday February 25 – Wednesday February 27) and compared them to the average of the past four Monday – Wednesday periods, excluding the three days periods that included the George Washington’s Birthday and Martin Luther King Day holidays when the markets were closed. Here’s what we found:
|Feb. 25-27||Avg. Mon-Wed|
(prior four weeks)
|Contributions||$18.6 million||$13.9 million||33.8%|
|(Withdrawals)||($3.7 million)||($2.8 million)||32.1%|
|Net Contributions / (Withdrawals)||$14.9 million||$11.1 million||34.2%|
Contribution increases outpaced the withdrawal increases, resulting in an overall net contribution increase of 34% over the recent time period versus the average. And when we looked at Reddit, we saw several people echoing this approach during this market drop:
“Made me wish I had more savings I could dump into my pies.”-SilentMaster
“It teaches me to stay the course. It means not to sell like the trader, and not to buy as the OP because they are both market timing.”-reheapify
“I’ll be dipping into my 18 months of emergency savings to deploy capital into my M1 taxable and Vanguard taxable account. I see this as a buying opportunity but I’m aware not to blow my wad so quickly.”-4pooling
“I didn’t change a thing. Set and forget, weekly deposits.”-Edeuinu
It appears that M1 investors are exhibiting patience in the aggregate.
Thanks Jason Zweig for an interesting point of view.
Do you have some favorite journalists or bloggers you follow? Please share!