John Bogle described the biggest cost of investing - an investor's reactivity causing selling at lows and buying at highs. This cost is well over 2% per year - a cost that towers over other investment costs. Is there a way to avoid these costs? Apparently so.
Large institutional investors have often proved themselves the worst in terms of reactivity, confirming Warren Buffett's comment that an IQ of over 120 is a wasted asset in investing. These large scale investors have been pouring money into private equity and venture capital. When zombie funds and survivorship bias and cash flow returns are calculated appropriately, private equity and venture capital returns do not exceed those of public markets. So what's the benefit?
Ask any money manager if she or he would be happy to pay for a statement that would revalue assets no more than one time a year and they would gladly sign up. Client investors read statements and invariably react the opposite of their best interest - inclined to buy high and sell low. Perhaps a product could be created that would allow static valuations of the portfolio with a liquidity option. The latest example of ignorance bearing fruit? SPACs.
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