If you're trading individual securities, you're almost certainly making a mistake. Because most professional managers can't outperform their benchmarks, and there's little reason to think that individuals can.
Interpretation
Investing in individual stocks is generally risky for individuals, as even professionals struggle to beat the market.
This quote by Richard Thaler emphasizes the difficulty that individual investors face when trying to outperform the overall market by selecting individual stocks. It suggests that, despite the allure of personal stock-picking, the statistical evidence shows that even skilled professionals often underperform the market benchmarks, indicating that the chances of success for individual investors using similar strategies are quite low.
In practice
During a finance seminar, a speaker might use this quote to illustrate the challenges of active investing.
The ability of businesses to monitor our behavior is already a fact of life, and it isn't going away. Of course we must protect our privacy rights. But if we're smart, we'll also use the data that is being collected to improve our own lives.
When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
Academia does not provide many opportunities for immediate gratification. You work for two years on a project, it takes two more years to get it published, and then you start hoping someone might read it.
In the world of traditional economics, it shouldn't matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.
My thesis topic was 'The value of a human life.' I asked people a question: 'Suppose you had some risk, a one in a thousand risk of dying - how much would you pay to eliminate it?'
At long as a stock is acting right, and the market is right, do not be in a hurry to take profits. One should never permit speculative ventures to run into investments.
Not yet have I found any better method to prosper during the future financial chaos, which is likely to last many years, than to keep your net worth in shares of those corporations that have proven to have the widest profit margins and the most rapidly increasing profits. Earning power is likely to continue to be valuable, especially if diversified among many nations.
A mortgage casts a shadow on the sunniest field.
Never pay the slightest attention to what a company president ever says about his stock.
The problem that people don't understand is that active managers, almost by definition, have to be poorly diversified. Otherwise, they're not really active. They have to make bets. What that means is there's a huge dispersion of outcomes that are totally consistent with just chance. There's no skill involved it. It's just good luck or bad luck.
Investors should invest on what they know. The biggest mistake is to invest on what they don't know.
Subscribe for the occasional hand-picked quote. No noise.