This is the seventh installment in an eight-part series: Navigating Market Volatility. In simple terms, market volatility is the relative rate at which the market goes up and down. Dramatic shifts can be scary, even for the most experienced investors. To keep market swings from making you anxious, take steps to help you respond to volatility in a deliberate way.
To read the previous post in this series click here.
In April, Li Lu and Bruce Greenwald took part in a discussion at the 13th Annual Columbia China Business Conference. The value investor and professor discussed multiple topics, including the value investing philosophy and the qualities Li looks for when evaluating potential investments. Q3 2021 hedge fund letters, conferences and more How Value Investing Has Read More
There have been numerous studies over the years detailing the importance of staying invested in the market, even during turbulent times—picking an active, passive or combination strategy, refraining from trying to "time" the market, and then letting the strategy work for you. Study after study has shown that when investors don’t stay the course, they do damage to their portfolio through poor timing: selling at or near the bottom and/or buying after the market has already appreciated.
Dalbar, Inc., a leading financial services market research firm, performs a variety of ratings and evaluations of practices and communications. As stated in multiple Dalbar reports: “Since 1994, Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term time frames. The results consistently show that the average investor earns less—in many cases, much less—than mutual fund performance reports would suggest.”
To demonstrate this effect, the charts below focuses on the last twenty years of daily returns for the Weitz Partners Value Fund-Institutional Class (WPVIX) and the S&P 500 through the end of April 2017. Using an initial purchase of $10,000, comparative performance assumes an investor missed the best 10, 20 and 30 performance days of the S&P 500. The results show the major impact of missing just a few important investment days.
WPVIX shares became available for sale on July 31, 2014. For performance prior to that date, this blog post uses the performance and expenses of the Fund’s Investor Class, without adjustment. For this period, the performance of WPVIX would have been similar to the Fund’s Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses.
Time The Market
What the data doesn’t show is that 72% of the S&P 500 top 30 performance days were within two weeks of a bottom 30 performance day. Unless you are incredibly accurate with the timing of your buys and sells, trying to time the market can-and usually does-lead to substantial losses.
Past performance does not guarantee future results. Weitz Partners Value Fund-Institutional Class (WPVIX) average annual total returns for the one-, five-, and ten-year periods ended March 31, 2017, were 11.39%, 9.22% and 5.18%. The S&P 500 Index average annual total returns for the one-, five- and ten-year periods ended March 31, 2017, were 17.17%, 13.30% and 7.51%. The Fund’s returns assume redemption at the end of each period and reinvestment of dividends, and reflect the deduction of the Fund’s annual operating expenses, which as stated in the most recent Prospectus, and expressed as a percentage of the Fund’s net assets, are 1.07% (gross). Fund returns include fee waivers and expense reimbursements; total returns would have been lower had there been no waiver/reimbursement by the investment advisor. The investment return and the principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance may be higher or lower than the performance data quoted above. Performance data current to the most recent month-end is available at https://weitzinvestments.com/funds_and_performance/fund_performance.fs.
Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund’s Prospectus contains this and other information about the Fund and should be read carefully before investing. The Prospectus is available from Weitz Investment Management, Inc., 1125 South 103rd Street, Suite 200, Omaha NE 68124-1071, weitzinvestments.com, (800) 304-9745 or (402) 391-1980. Weitz Securities, Inc. is the distributor of the Weitz Funds.