From the course: Behavioral Finance Foundations
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Individual investor performance
From the course: Behavioral Finance Foundations
Individual investor performance
- Individual investors stink at investing. Imagine an investor who sells a stock and buys a stock at exactly the same time. So they sell Stock A, and they buy Stock B. And the only reason they're selling Stock A is because they believe that Stock A is inferior to Stock B. A year later, what happens? Well, in studies that've looked at this question, one year later the value on average of that stock that the individual investors sell, minus the stock they buy, the difference is almost 4%. So the return on the stock that's bought minus the return on the stock that's sold is negative 4%. That's bad. What that means is that basically individual investors systematically sell stocks just as they're about to go up, and they buy stocks just as they're about to go down. In other words, the stocks that investors sold were worth 4% less than the stocks that they bought one year later. This holds true, not for any individual…
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