Dr. Daniel Crosby, a psychologist specializing in behavioral finance, wrote an article titled 5 answers for the scared voices in your head.
« In his book, What Investors Really Want, behavioral economist Meir Statman cites research from Sweden showing the heaviest traders lose 4% of their account value each year. Across 19 major stock exchanges, investors who made frequent changes trailed buy-and-hold investors by 1.5% a year. »
« the greatest value provided by an advisor was behavioral coaching, which added 150 bps per year »
I asked: Are these the same 150 bps? Or are these additive?
Answer: Different studies but I imagine that the underlying mechanism is similar – keep you from doing too much.
Me: So presumably 150 total, not 300.
« As Ben Carlson relates in A Wealth of Common Sense, “A study performed by the Federal Reserve…looked at mutual fund inflows and outflows over nearly 30 years from 1984 to 2012. Predictably, they found most investors poured money into the markets after large gains and pulled money out after sustaining losses—a buy high, sell low debacle of a strategy.” Everyone knows to buy low and sell high, but very few put it into practice. »
« Since 1928, the US economy has been in recession about 20% of the time and has still managed to compound wealth at a dramatic clip. What’s more, we have never gone more than 10 years at any time without at least one recession. Now, we are not currently in a recession, but you could expect between 10 and 15 in your lifetime. The sooner you can reconcile yourself to the inevitability of volatility, the faster you will be able to take advantage of all the good markets do »
Crosby is the author of The Behavioral Investor and The Laws of Wealth.