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You Are ‘Shockingly’ Terrible At Investing

Not me, this is what research from Richard Bernstein Advisors shows – that the ‘average’ investor is terrible at investing.

This following chart, which shows returns over 20 years, of various asset classes, proves this…


Here is what Bernstein’s report states –

The performance of the typical investor over this time period is shockingly poor. The average investor has underperformed every category except Asian emerging market and Japanese equities. The average investor even underperformed cash (listed here as 3-month t-bills)!

The average investor underperformed nearly every asset class. They could have improved performance by simply buying and holding any asset class other than Asian emerging market or Japanese equities. Thus, their underperformance suggests investors’ timing of asset allocation decisions must have been particularly poor, i.e., investors consistently bought assets that were overvalued and sold assets that were undervalued.

Even cash has outperformed the ‘average investor’!

So much for the idea of buying stocks to create wealth over the long run – and 20-years is a long term, right?

“What are you saying Vishal?” you may ask. “You yourself ask us to invest in stocks!”

Not at all, my friend!

Safal Niveshak exists not to push you to buy stocks on your own, but to help you with the process of doing it sensibly in case you want to buy stocks on your own.

This is because however I try to deter people saying that direct stock picking is not for everyone, many would continue to do it. So it’s better that they do it sensibly.

Buying quality businesses at sensible prices and owning them for years is what creates wealth over the long run, but how many people do it?

I recently met an old gentleman at my Raipur True Wealth Workshop, who has been in the stock market for 20 years. “But I have never made money!” he confessed.

The irony is that while he has been trading in and out of stocks from these 20 years, he continues to believe in doing the same.

Over that, he surprisingly told me, “I don’t know anything else that works!”

“Does it really work?” was my final reaction.

How I wished I could’ve put that gentleman in touch with someone like R.K. Chandrasekhar, a Safal Niveshak tribe member, who has created wealth using the old school approach – buying stocks of good businesses and sitting on them for 25-30 years.

That’s what really works in the long run. Or to invert – doing anything else, but owning high-quality businesses for the long run, doesn’t work in the stock market.

But still, most people would rather die than think and invest well and sit on their investments for the long term.

Now, when someone asks me – “What’s your advice for the average investor?” my only answer is – “Stop being average.”

‘Average’ investors are terrible at investing, you see. 😉

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. I think we need to define the term Investor first. Everybody who puts money in stocks is not an Investor. It’s the average speculator who is being talked about.

    Regards,
    Raj

    • By the way same term was used in NSEL case. No investor will go there for sure. It’s only speculators and punters who lost money at NSEL not an Investor.

  2. ..and when you meet “any” investor down the road, try to ask them which type of investor they are or are they average investor.. I bet most of time answer would be “Hell No.”.

    After reading the article, Only one thing flashed in my mind about people, specifically from India, a famous (and controversial) saying by one well known name. I don’t want to repeat the words here but can name who said it, Mr. Markandey Katju.

  3. Good one Vishal.

    Thanks for the timely post, some of it goes in line with my latest post.

    Loved Subra’s interview postings.

  4. I started putting money(not using the word investing) in stock market 7 year back and my return were terrible. I even wrote those in my blog…. Sometime in 2012 i came across Vishal blog and started reading many stock investing books. Stopped putting money in stock market for more than 2 year (2010-1012)…. at the same time i made my mind not to sell any stock (be it bad stock or good stock) that i hold… in 2014 i am pretty happy that at least i earned from stock market using last year crash and my sum total of learning.Still i feel i learnt only 15% of what and how to invest in stocks… Still learning …..its very vast… Thank God i learned it in my early 30s….These days blogs and internet helping people to learn many things too.. Here i definitely give credit to Vishal’s Mastermind course(1st batch) which i opted for… this course helped me thinking independently and sensibly … Also encouraged me that even a lay man like me can invest in stocks by doing few calculations… Though i am still reading the books he pointed out through out his course ….. And i think this will continue till i alive..

    The one thing i learned is the products which i do not understand i do not put money.but that does not mean i will not try to understand and learn those things… this is what requires in stock investing to be precise….

  5. Do you think this research holds good for average investor in India? By average investor in India what comes into my mind people doing FDs, buying LIC policies, real estate, a bit of gold etc… Do you think average Indian investor makes ~2% ROI?

    Please note the inflation figure in your graph which is also close to 2%

  6. From the bottom of my heart i understand the importance of sitting over the stocks for 20yrs. However when a guy coming from a middle class background and who is in 30 discovers that he needs to sit for 20 yrs then he starts thinking that afterall for whom? Is stock market for us or our children? What’s your thought on this? O find is discouraging to start in the first place. I will be looking forward to comments proving me wrong

  7. Share market is worst place to make money, expect for those who do it as business. Average investors have much more safe and reliable options which in the short term give better returns than share market also. And long term is a myth.

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