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.
You've got to tell your money what to do or it will leave.
When you sell options, you get paid for assuming risk. That can be a profitable business, but it does not mix well with the risks inherent in a leveraged portfolio.
Saving is a fine thing. Especially when your parents have done it for you.
Any bull market covers a multitude of sins, so there may be all sorts of problems with the current system that we won't see until the bear market comes.
Money management has been a profession involving a lot of fakery - people saying they can beat the market, and they really can't.
Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.
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