Individual Investor Performance by Motive and Method


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Advisory
What motives and methods of individual investors enhance performance?
In their June 2010 paper entitled ?Behavioral Portfolio Analysis of
Individual Investors?, Arvid Hoffmann, Hersh Shefrin and Joost
Pennings analyze how systematic differences in investor objectives and
strategies impact the portfolios they select and the returns they
earn. Using 5,500 responses from a 2006 survey of individual account
holders at an online broker in the Netherlands matched to detailed
trading activity during January 2000 through March 2006, they conclude
that:
Investors driven by speculation have higher portfolio turnover, take
more risk, judge themselves to be more advanced and underperform
relative to investors driven by the need to build a financial buffer
or save for retirement (see the first chart below).
Investors who rely on fundamental analysis have higher portfolio
turnover, take more risks, are more overconfident and outperform
investors who rely on technical analysis (see the second chart below).
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Beliavsky

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