Earlier this year, T. Rowe Price banned more than 1,300 participants in the American Airlines 401(k) plan from trading in some of its funds. The majority of these participants were following trading recommendations published in a newsletter. The Wall Street Journal, meanwile, reported on the emergence of a 401(k) trading account newsletter industry. This is not a welcome development for plan sponsors. Here’s why:
1. Traders never prosper in the long run. All market traders use “systems” based upon factors, algorithms or key data elements to generate purchase and sale recommendations. These systems may allow followers to prosper for a while, but there has never been a trading system that has been successful over the long run. Markets change, data elements lose their relevance and traders are rarely able to successfully adjust their models to keep pace.
