Biggs made his name as chief global strategist with Wall Street investment bank Morgan Stanley. These days, he runs his own hedge fund and remains a regular media commentator on market trends.
In early July 2010, when market sentiment was the worst it had been since the crisis, Biggs announced he had sold half his equity holdings. Stocks had fallen nine times in 10 days and all the talk was of a double-dip recession.
“I’m not putting my money into anything,” Biggs said at the time. “I’ve taken basically all of it out in the US, and we had a broader exposure to consumer stocks and just, in general, I’ve reduced my net long position by about 30 or 40 percentage points.”1
That was a shame, as that point in early July marked the beginning of a turnaround in stocks that took the S&P-500 up more than 8 per cent in the intervening four weeks. Bolstering sentiment were solid earnings reports and more encouraging signs on the US and global economies.
In a radio interview with Bloomberg at the end of July, Biggs said he had now changed his mind and was rebuilding his positions in stocks.
“Economic data around the world in the last 10 days to two weeks has turned more positive,” he said. “It has exceeded forecasts almost without exception. The odds of the world slumping into a significant slowdown have diminished.”
None of this is intended to reflect poorly on Biggs’ skills as an investor. He clearly has a large market following and there appear to be plenty of people willing to back his judgment on perceived turning points.
But it does show the great difficulty facing even the most experienced and well informed investors in perfectly judging when to get into or out of the market. For everyday investors, then, the challenge must be even harder.
Research group Dalbar has charted this challenge for many years in its quantitative analysis of investor behaviour, a survey that shows investors almost ritually make the mistake of buying high and selling low.
In a recent interview with Barron’s, Dalbar founder Lou Harvey pointed out that many investors missed the boat yet again in 2009 by moving into safe investments like cash and missing the upturn when it came.2
The best protected investors, Dalbar found, were those who worked with advisors that put their clients first. By contrast, do-it-yourself investors tended to underperform those advised by a fiduciary.
“We found that people working with fiduciaries, advisors with a legal obligation to put the client first, and whose personal assets were on the line, tended to be among the winners - these clients were well protected,” Harvey said.
So it’s a familiar story. Investment advice is not about making predictions about the market. It’s about education and diversification and designing strategies that meet the specific needs of each individual. Ultimately it’s about saving investors from their own, very human, mistakes.
And, as we’ve seen, even the best of us make those.