Investor Alert

MarketWatch Premium Archives Subscribe

June 19, 2021, 10:40 a.m. EDT

How to protect your stock-market portfolio from the ‘tyranny of the average’

By Mark Hulbert

CHAPEL HILL, N.C.–The “tyranny of the average” is leading you to incur dangerous levels of risk with your stock-market investments.

By the “tyranny of the average,” I’m referring to our tendency to extrapolate historical averages into the future while ignoring the wide range of values that make up those averages. To use a time-worn example, we will report that a man on average is feeling just fine while ignoring that he has his feet in the oven and his head in the freezer.

The overconfidence caused by the tyranny of the average leads to any of a number of investor errors. In this, my monthly review of the latest Wall Street research, I want to focus on just one of them: The surprisingly wide range of possible 10-year returns given the stock market’s current overvaluation.

Get news alerts on S&P 500 Index — or create your own.

Partner Center

Link to MarketWatch's Slice.