There is a recent post by Eric Nelson that uses AQR to make one really good point and then to, kind of oddly, pointedly not ask the next logical question. Here I ask and answer that question.
Eric reminds us that what the average investor in a fund gets is different from the return of that fund. That's true and important. If they get in and out with poor timing they can sabotage themselves. Next, his thesis is that investors in “alternative” funds, funds meant to be diversifying to traditional investments and often using more hedged strategies, are worse timers. He uses Dimensional Fund Advisors (DFA) as the example of traditional investing1 and us (AQR, in case you've forgotten!) as the example of alternative investing. It's nice to be an icon I guess… But, then it all goes south for us in Eric's piece. He shows that investors hurt themselves in the example alternative funds (by getting in/out at the wrong times and thus having their aggregate dollar weighted experience underperform the actual fund) but not in the traditional funds.
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