I never meant to make you cry
And though I know I shouldn’t call
It just reminds us of the cost
Of everything we’ve lost
Bad timing, that’s all
– Bad Timing, Blue Rodeo
One of the promises made by active managers is that they can move to cash before the markets tank and then get reinvested before they recover. When markets are as volatile as they have been in recent years, a manager with this skill would be something of a hero.
I recently looked at the record of actively managed mutual funds during bear markets for an article just published in Canadian MoneySaver. I found that there were indeed periods where managers were able to protect investors from losses. The problem was that defensive mangers were usually late to the recovery party. As a result, over an entire market cycle most investors are usually better off staying fully invested all the time.
Shortly after the article appeared, Dave Dennis of Newmarket, Ont., explained that he had done his own informal study on this subject a couple of years ago and generously agreed to share his findings.