By Lawrence Solomon
Investors consistently try to out think the market – for instance, selling to avoid losses when they somehow think they know a security is likely to decline, or jumping into a security when they somehow think they know it is likely to increase.
The amazing element of this investment pattern is how consistently disastrous it has been – retail investors as an asset class have a horrendous track record vs. almost every other over the last 20 years.
The explanation for this tepid performance is unproductive “fiddling” by retail investors – in an effort to somehow beat the system, investors wind up consistently losing to it, year after year.
Along similar lines, Morningstar has extensively studied investor underperformance within mutual funds – i.e., investors often underperform the very funds they invest in by hundreds of basis points, due to “suffer[ing] from poor timing and poor planning…many chase past performance and end up buying funds too late or selling too soon.” (Source: Morningstar)
What drives this universal phenomenon of investors “buying funds too late or selling too soon”?
About the author: Lawrence Solomon -- With more than 18 years in financial services, Mr. Solomon has driven profitable growth at firms both large and small. As the Chief Operating Officer of Exceed Investments, Lawrence Solomon oversees strategic planning, capital expenditures, and overall administration for the firm, ensuring that the firm is well positioned to provide investors and partners with cutting edge products and services.