re: showdown ---...

re: showdown --- Towie, the stockmarket is the best long run investment but not for active traders. Stanroc is being brutally honest. People delude themselves into thinking they have some special market insight but it's an expensive farce. I've seen traders boasting of 30-100% annual returns. Absolute rubbish. Anyone who can consistently gain 30% or more a year will be the richest person in the world within a few decades. Warren B's long run average is only 28%.

Any traders out there ought to check out this website --> http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1513 If they learn how much the odds are stacked against they might save themselves a lot of stress and money by reverting to a buy-and-hold-undervalued-quality strategy.


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=219242
We examine changes in the stock trading behavior and investment performance of 1,607 investors who switch from phone based to online trading during the period 1992 to 1995. We document that young men who are active traders with high incomes and a preference for investing in small growth stocks with high market risk are more likely to switch to online trading. We also find that those who switch to online trading experience unusually strong performance prior to going online, beating the market by more than two percent annually. After going online, they trade more actively, more speculatively, and less profitably than before -- lagging the market by more than three percent annually. A rational response to reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) does not explain these findings. The increase in trading and reduction in performance of online investors can be explained by overconfidence augmented by self-attribution bias, the illusion of knowledge, and the illusion of control.


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=219175
We present evidence that the average individual investor pays an extremely large performance penalty for trading. Those investors who trade most actively earn, on average, the lowest returns. And the stocks individual investors purchase do not outperform those they sell by enough to even cover the costs of trading. In fact, the stocks individual investors purchase, on average, subsequently underperform those they sell.


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=139415
Theoretical models of financial markets built on the assumption that some investors are overconfident yield one central prediction: overconfident investors will trade too much. We test this prediction by partitioning investors on the basis of a variable that provides a natural proxy for overconfidence--gender. Psychological research has established that men are more prone to overconfidence than women. Thus, models of investor overconfidence predict that men will trade more and perform worse than women. Using account data for over 35,000 households from a large discount brokerage firm, we analyze the common stock investments of men and women from February 1991 through January 1997. Consistent with the predictions of the overconfidence models, we document that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women. These differences are more pronounced between single men and single women; single men trade 67 percent more than single women and earn annual risk-adjusted net returns that are 2.3 percent less than those earned by single women.


As a long term shareholder in ASX this advice is against my own best interests. Traders churning their portfolios pay my dividends.