Performance Chasing Sacrificing Earnings
February 25, 2008
MIAMI-As the burden of responsibility for retirement planning continues to shift toward the individual, investors should be cautious about "fast analysis" investment advice, a top financial executive told attendees at the NICSA conference here last Tuesday.
Popular TV programs like Jim Cramer's "Mad Money" show on CNBC can exacerbate the performance-chasing behavior of inexperienced investors, Putnam Investments President and CEO Charles "Ed" Haldeman told a group of money managers here at the National Investment Company Service Association's "Cultivating Growth" conference.
"That kind of barrage of input has to impact people in terms of performance," Haldeman said.
Too many choices, short holding positions and a habit of chasing performance has caused individual investors to underperform defined benefit plans by an average of 100 basis points, he said. In addition, the average retention rates for holdings has dropped from about 10 years to about three years, Haldeman said, citing average retention rates between 1987 and 2006.
Inexperienced investors are more likely to pull their money out of the stock market during down periods, instead of stabilizing and diversifying their holdings, he said.
Easy, online trading programs also have the potential to be very destructive to an inexperienced investor's portfolio if the investor starts making spontaneous and uninformed decisions.
"The real challenge will be to get 50 million Americans to understand that," he said.
Asset managers have a responsibility to help people take care of their money, and more can be done to increase investor education, he said.
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