The average investor's return is significantly lower than market indices due primarily to market timing.
Interpretation
Most investors earn less than the market due to poor timing decisions.
In this quote, Daniel Kahneman highlights a common issue among average investors, which is their tendency to buy and sell assets at the wrong times, resulting in returns that fall short of the overall market performance. This underscores the importance of strategy and discipline in investing, as emotional reactions can lead to suboptimal financial decisions that affect long-term wealth accumulation.
In practice
During a finance workshop discussing optimal investing strategies.
We think, each of us, that we're much more rational than we are. And we think that we make our decisions because we have good reasons to make them. Even when it's the other way around. We believe in the reasons, because we've already made the decision.
Banks are run by executives, and executives protect themselves, and that does not always mean that banks are going to behave rationally.
Laziness is built deep into our nature.
Through some combination of culture and biology, our minds are intuitively receptive to religion.
You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general.
It's very easy for trusted companies to mislead naive customers, and life insurance companies are trusted.
Observing that the market was FREQUENTLY efficient, EMT Adherents went on to conclude incorrectly that it was ALWAYS efficient. The difference between these propositions is night and day.
I like Burton Malkiel's 'A Random Walk Down Wall Street.' He comes to the same conclusion that I do - that indexing is the way. My 'Little Book of Common Sense Investing' says pretty much the same thing.
Your most expensive advice is the free advice you receive from your financially struggling friends and relatives.
Any man who is a bear on the future of this country will go broke.
Banking is a very treacherous business because you don't realize it is risky until it is too late. It is like calm waters that deliver huge storms.
Investing isnβt risky; not being in control is risky.
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