Individual Investing

…experimental evidence indicates that participation in stock message boards/forums increases a typical investor’s propensity to trade and decreases actual investment performance. Investors may want to factor this effect into their information search and processing practices.

…evidence from a limited test period suggests that conservative investing motives tend to outperform a speculative motive and that both news-augmented intuition and fundamental analysis tend to outperform technical analysis.

How much individual investing is lottery-like, just hoping for a big score with no analysis? In their June 2010 paper entitled “Natural Experiments on Individual Trading: Substitution Effect Between Stock and Lottery”, Xiaohui Gao and Tse-Chun Lin relate individual trading activity to national lottery jackpot size in Taiwan. Using twice-weekly lottery jackpots and contemporaneous Taiwan More…

…evidence indicates that sophisticated investors appear to recognize the importance of trading friction to net return and gauge holding periods accordingly.

…evidence from laboratory experiments indicates that simulated experience, especially with graphical display of results, instills a more realistic grasp of investment choices than does exposure to numerical statistics.

…optimal rebalancing frequency depends on investing/trading strategy specifications, trading friction assumptions and account size.

Several readers have proposed that one can bypass trading frictions…

…evidence indicates that the sign (much more than size of profit/loss) of recent trades influences the future trading behavior of individual investors. This influence is adverse to overall profitability.

…evidence from small samples indicates that housing price adjusted for inflation, disposable income and GDP reverts to trend (and that adjusted U.S. housing price is currently low).

…evidence from detailed Chinese stock account data indicates that the trading of unsophisticated individuals tends to transfer their wealth to institutions and more sophisticated individuals (and to brokers and the government).

…evidence indicates that stamps probably underperform stocks, beat bonds and gold and tie art over the long run, with a return pattern somewhat like that of gold.

…financial advisors may be able to improve advisee satisfaction by refining the typical approach to risk tolerance measurement and accommodation. The self-advised can apply such refinement to themselves.

…evidence indicates that art in aggregate: (1) has delivered a competitive mean return, but with extremely high volatility, over the past 24 years; (2) is not a good hedge for stocks; and, (3) generally offers diversification benefits to a portfolio of asset classes.

…John Bogle continues to emphasize: (1) balance across stocks and bonds; (2) diversification through broad index funds; (3) funds with low costs; (4) avoidance of trading; (5) tax efficiency; (6) skepticism that hot fund managers will continue to outperform; and, (7) a long-term perspective.

…evidence suggests that: (1) the wealth of the wealthy drives art prices; and, (2) art prices tend to evolve with, or somewhat behind, the equity market at a similar pace.