Why Investors Lose Money Even in a Rising Market

Here is a fact that should stop every investor in their tracks: between 1993 and 2022, the S&P 500 delivered an average annual return of approximately 9.65%. During that same period, the average equity fund investor earned just 6.81% per year. That gap — nearly three full percentage points annually — does not sound like much until you compound it over decades. On a $100,000 investment over 30 years, the difference between 9.65% and 6.81% annual returns is roughly $800,000 in lost wealth. Not because the market failed. Not because the economy collapsed. But because investors got in their own way.

The market went up. It almost always goes up over long periods. And yet, millions of investors still managed to lose money — or at least dramatically underperform — during one of the greatest bull runs in financial history. How is that even possible?

The answer is not complicated, but it is deeply uncomfortable: the biggest threat to your portfolio is not a recession, a market crash, or a bad stock pick. It is you. Your emotions, your instincts, your reactions to headlines, and your inability to sit still when every fiber of your being screams “do something” — these are the forces that quietly destroy wealth in rising markets.

This article will walk you through every major way investors sabotage their own returns, backed by decades of research data. More importantly, it will show you exactly how to fix each problem. Because the good news is this: once you understand the behavioral traps, they become much easier to avoid.

The Behavior Gap: Why Your Returns Are Worse Than You Think

Financial planner Carl Richards coined the term “behavior gap” to describe the difference between investment returns and investor returns. The concept is elegantly simple: a fund might return 10% per year, but the average person invested in that fund might earn only 6% or 7%. The missing percentage points vanish into the gap between what the investment does and what the investor does with the investment.

This is not a theoretical problem. It shows up in every dataset, across every time period, in virtually every country with a functioning stock market. The behavior gap is universal because the psychological forces driving it are universal. Fear, greed, impatience, overconfidence — these are not bugs in human psychology. They are features that evolved to keep us alive on the savannah. They just happen to be catastrophically bad for portfolio management.

Think about it from an evolutionary perspective. When our ancestors heard a rustling in the tall grass, the ones who panicked and ran survived to pass on their genes. The ones who calmly assessed the probability of a predator versus a harmless breeze became lunch. We are descended from the panickers. And when the stock market drops 20% in a week, that same panic response fires up and tells us to sell everything immediately.

The behavior gap manifests in dozens of ways, but they all boil down to a handful of core mistakes. Let us examine each one in detail, starting with the research that first quantified the problem.

The Dalbar Study: Two Decades of Investor Underperformance

Since 1994, Dalbar Inc. has published its annual Quantitative Analysis of Investor Behavior (QAIB) report. It is arguably the most cited study in the field of behavioral finance, and its findings have remained remarkably consistent for over two decades: the average investor significantly underperforms the broader market.

The methodology is straightforward. Dalbar calculates “investor returns” by analyzing the timing and volume of mutual fund purchases and redemptions reported by the Investment Company Institute. This captures the actual dollar-weighted returns that real investors experienced — including the effects of buying at peaks, selling at troughs, and switching between funds at exactly the wrong moments.

Look at those numbers carefully. Over 20 years ending in 2022, the average equity fund investor earned 6.02% annually while the S&P 500 returned 9.80%. That is a behavior gap of nearly four percentage points every single year for two decades. The cumulative impact is staggering.

To put this in dollar terms: if you invested $50,000 in 2002 and earned the S&P 500 return of 9.80% annually for 20 years, you would have approximately $325,000. If you earned the average investor return of 6.02%, you would have approximately $165,000. Same starting amount. Same time period. Same bull market. But $160,000 less in your pocket.

The Dalbar data also reveals something else that is crucial: the underperformance is not symmetrical. Investors do not underperform by a consistent amount every year. They underperform massively during volatile periods — exactly when getting it right matters most. During the 2008-2009 financial crisis, many investors sold near the bottom and did not return to the market until it had already recovered much of its losses. During the COVID crash of March 2020, the pattern repeated. The market dropped roughly 34% and then rallied back to new highs within months, but many investors who panicked and sold missed the fastest recovery in market history.

It is worth noting that the Dalbar findings are not unique. Research from Morningstar, Vanguard, and academic institutions has consistently confirmed the behavior gap, though estimates of its size vary depending on methodology. Morningstar’s “Mind the Gap” study, for instance, found that the average investor dollar-weighted return trailed the average fund’s time-weighted return by about 1.7% annually over the 10 years ending in 2021. Whether the gap is 1.7% or 3.8%, the point remains: investors systematically destroy their own returns.

The Buy High, Sell Low Trap

Every investor knows the golden rule: buy low, sell high. It is so obvious that it barely qualifies as advice. And yet, the data shows that the vast majority of investors do the exact opposite. They buy high and sell low, over and over again, across decades and market cycles.

This happens because of a powerful psychological phenomenon called recency bias — the tendency to assume that whatever has been happening recently will continue to happen. When the market has been rising for months, your brain extrapolates that trend into the future. It feels safe to buy. Everyone around you is making money. The news is positive. Your neighbor is bragging about his tech stocks at the barbecue. So you jump in, often right near the peak.

Then the inevitable correction comes. The market drops 10%, then 15%, then 20%. Suddenly, your brain extrapolates the new trend: everything is falling, it will keep falling, you need to get out before you lose everything. So you sell — right near the bottom.

The tragic irony is that the moments when investing feels most terrifying are usually the best times to buy, and the moments when it feels safest are often the worst. Consider the following scenarios from recent history:

The pattern is unmistakable. Maximum optimism aligns with market peaks. Maximum pessimism aligns with market bottoms. And because most investors follow their feelings rather than a disciplined process, they consistently end up on the wrong side of these turning points.

Fund flow data confirms this pattern with brutal clarity. In the months leading up to major market peaks, mutual fund and ETF inflows surge. Investors pour money in at exactly the worst possible time. Then, in the weeks and months following sharp declines, outflows spike. Investors pull their money out right when stocks are cheapest. It is the financial equivalent of buying winter coats in July at full price and returning them in January when they go on sale.

The 2020-2021 period provided a particularly vivid example. During the COVID crash in March 2020, equity fund outflows hit record levels. Investors pulled roughly $326 billion from equity funds in March and April 2020 alone. Then, as the market raced to new all-time highs through late 2020 and into 2021, inflows surged. By the time speculative euphoria peaked in early 2022 — with meme stocks, SPACs, and cryptocurrency mania — retail investor participation was at all-time highs. The subsequent 2022 bear market punished those late entrants severely.

Performance Chasing and the Rearview Mirror Problem

One of the most destructive habits in investing is performance chasing — the practice of moving money into whatever has been performing well recently and abandoning whatever has not. It sounds rational on the surface. Why would you not want to own the best-performing assets? But in practice, performance chasing is a reliable way to buy high and sell low in disguise.

The financial industry’s most ubiquitous disclaimer — “past performance is not indicative of future results” — exists precisely because of this tendency. And the data overwhelmingly supports that disclaimer. Study after study has shown that last year’s top-performing mutual funds, sectors, and asset classes tend to underperform in subsequent years, while last year’s laggards often outperform.

Morningstar’s research on fund flows provides compelling evidence. They consistently find that funds with the highest inflows — meaning the most popular funds that investors are actively choosing — tend to underperform funds with lower or negative flows in subsequent periods. Investors are drawn to the hot fund with the impressive three-year track record, not realizing that much of that performance may have been driven by factors unlikely to persist.

Consider the tech-heavy funds during the late 1990s dot-com bubble. The Janus Twenty fund, one of the era’s most popular growth funds, attracted billions in inflows during 1999 and early 2000 after posting spectacular returns. Investors who chased that performance suffered devastating losses when the bubble burst. The fund lost over 60% of its value from its peak. The investors who piled in at the top experienced far worse returns than the fund’s long-term track record would suggest.

Performance chasing also manifests at the sector level. In 2020 and 2021, investors flooded into technology and growth stocks, chasing the extraordinary returns driven by pandemic-era dynamics. When interest rates rose sharply in 2022, many of those high-flying growth stocks fell 50% to 80% from their peaks. Meanwhile, boring value stocks and energy companies — which most performance chasers had abandoned — outperformed dramatically.

The same pattern plays out in international investing. After US stocks outperformed international stocks for most of the 2010s, many investors abandoned international diversification entirely, concentrating their portfolios in US equities. This is classic performance chasing on a geographic scale. History suggests that these periods of relative outperformance tend to reverse, but investors anchored to recent performance cannot see that possibility.

The rearview mirror problem extends to individual stock picking as well. When investors see a stock that has risen 300% over the past year, something in their brain whispers, “If I had bought that stock a year ago, I would be rich.” That thought transforms into, “I should buy it now before it goes even higher.” But the stock that has already risen 300% has already priced in a great deal of optimism. The easy money has already been made. Buying after a massive run-up is not investing — it is speculating that the crowd’s enthusiasm will continue to grow.

Overtrading and the Silent Drain of Fees

In 2000, Brad Barber and Terrance Odean published a landmark study with a title that said it all: “Trading Is Hazardous to Your Wealth.” They analyzed the trading records of over 66,000 households at a large discount brokerage between 1991 and 1996, and their findings were striking.

The households that traded the most — the top 20% by turnover — earned an average annual return of 11.4%. The market returned 17.9% during the same period. Those hyperactive traders underperformed by 6.5 percentage points per year, primarily due to transaction costs and poor timing. Meanwhile, the least active traders nearly matched the market’s return.

The era of zero-commission trading has not solved this problem — it may have made it worse. While eliminating commissions removed one source of friction, it also removed one of the few barriers that prevented impulsive trading. When it costs nothing to buy and sell, the temptation to act on every market movement increases dramatically.

Even without commissions, overtrading still incurs costs. There are bid-ask spreads on every trade, which can be significant for smaller or less liquid stocks. There are tax consequences — short-term capital gains are taxed at higher ordinary income rates rather than the lower long-term capital gains rates. And there is the opportunity cost of being out of the market during the brief periods that generate the majority of returns.

This last point deserves emphasis. JP Morgan Asset Management has repeatedly shown that missing just the 10 best trading days in any 20-year period cuts your total return roughly in half. Miss the 20 best days and your return drops by about 75%. Those best days tend to cluster around the worst days — they often occur during or immediately after sharp selloffs. So the investor who sells in a panic and waits for things to “calm down” before buying back in is almost guaranteed to miss the recovery days that matter most.

Beyond the direct costs, overtrading reflects a deeper psychological issue: the illusion of control. Investors who trade frequently often believe they are adding value through their market timing and stock selection. In reality, the vast majority are simply generating activity without generating returns. They confuse motion with progress.

Emotional Reactions to Volatility

Volatility is the price of admission to the stock market’s long-term returns. This is a statement that virtually every investor intellectually agrees with and virtually no investor emotionally accepts when volatility actually arrives.

The stock market has historically experienced a 10% correction roughly once per year, a 20% bear market every three to four years, and a 30%+ crash roughly once per decade. These drawdowns are not aberrations or signs that something is broken. They are the normal functioning of a market that prices in uncertainty about the future. And yet, each time a correction or crash occurs, investors react as though it is unprecedented and likely permanent.

The neuroscience behind this reaction is well documented. Financial losses activate the amygdala — the brain’s threat detection center — in ways nearly identical to physical threats. Brain imaging studies have shown that the pain of a financial loss is processed in the same neural regions as physical pain. Moreover, the psychological research pioneered by Daniel Kahneman and Amos Tversky demonstrated that losses feel roughly twice as painful as equivalent gains feel pleasurable. This asymmetry — known as loss aversion — means that a 20% drop in your portfolio causes significantly more psychological distress than a 20% gain causes joy.

This explains why bear markets feel so much worse than bull markets feel good. When your portfolio drops by $50,000, the emotional impact is roughly equivalent to losing $100,000 in positive emotions. Your brain screams at you to make the pain stop, and the only way to make it stop immediately is to sell. So you sell. And by selling, you lock in the loss and miss the recovery that follows.

The media amplifies this emotional response dramatically. During market downturns, financial news shifts into full crisis mode. Headlines become apocalyptic. Pundits compete to deliver the most alarming predictions. The 24-hour news cycle ensures that you are constantly reminded of how much money you are “losing” (even though unrealized losses are not actual losses). Social media adds another layer of anxiety, as you see other people panicking and selling, creating a sense that you should be panicking and selling too.

Consider the emotional journey of a typical investor through a complete market cycle:

Notice that the correct action is almost always the opposite of what emotions dictate. This is not a coincidence — it is a structural feature of markets. Markets are driven by collective human psychology, so the points of maximum emotional intensity tend to be the points of maximum mispricing. When everyone is terrified, assets are cheap. When everyone is euphoric, assets are expensive.

The practical challenge is that knowing this intellectually does not make it emotionally easy. You can read a hundred articles about staying calm during market drops, but when your portfolio is down $100,000 and the news is talking about economic Armageddon, rational thought takes a back seat to survival instinct. This is why behavioral solutions — rules, systems, automation — are so much more effective than willpower alone. We will discuss those solutions later in this article.

Investing Without a Plan

Ask ten random investors whether they have a written investment plan, and you will be lucky if two of them say yes. Most investors operate without any formal plan at all. They make decisions reactively — buying because something feels right, selling because something feels wrong, and allocating based on whatever has their attention at the moment.

This is the equivalent of setting out on a cross-country road trip without a map, a destination, or a full tank of gas. You might eventually get somewhere interesting, but the odds of reaching your intended destination are slim.

An investment plan does not need to be complicated. At its core, it answers four questions:

1. What are my financial goals? (Retirement at 60, house down payment in five years, children’s education fund, etc.)
2. What is my time horizon? (When will I need this money?)
3. What is my risk tolerance? (How much volatility can I stomach without making rash decisions?)
4. What is my asset allocation? (How will I divide my money among stocks, bonds, real estate, and other asset classes?)

Without clear answers to these questions, every market movement becomes a decision point. Should I buy? Should I sell? Should I switch to bonds? Should I increase my stock allocation? Without a plan, there is no framework for making these decisions, so they default to whatever emotion is strongest in the moment.

With a plan, most of these decisions are already made. If your plan says “80% stocks, 20% bonds, rebalance annually,” then you know exactly what to do when stocks fall (buy more stocks to get back to 80%) and when stocks surge (sell some stocks to get back to 80%). The plan removes emotion from the equation. It transforms investing from a series of agonizing judgment calls into a mechanical process.

Research from Vanguard has shown that investors who work with a financial advisor and follow a structured plan tend to earn 1.5% to 3% more annually than those who do not — a finding Vanguard calls “Advisor Alpha.” Importantly, most of this added value does not come from better stock picking or market timing. It comes from behavioral coaching: keeping investors on track during volatile periods, preventing impulsive decisions, and enforcing disciplined rebalancing.

You do not necessarily need a financial advisor to get these benefits. You need a plan that you commit to following regardless of market conditions. The plan is the guardrail that keeps you on the road when emotions are trying to send you off a cliff.

Concentrated Bets and the Diversification Myth

There is a seductive narrative in investing that goes like this: “Diversification is for people who do not know what they are doing. The real money is made by concentrating in your best ideas.” Warren Buffett himself has said things that seem to support this view, famously calling diversification “protection against ignorance.”

What most people miss about Buffett’s comment is context. Buffett is one of the most talented business analysts in history, with over 70 years of experience, a team of experts, and access to information and deal flow that ordinary investors cannot dream of. When Buffett concentrates, he is making informed bets based on deep knowledge. When the average investor concentrates, they are making gambles based on limited information and psychological biases.

The data on concentrated portfolios is sobering. Hendrik Bessembinder published a landmark study in 2018 examining the lifetime returns of every US stock listed since 1926. His findings were remarkable: the entire net wealth creation of the US stock market — every dollar of gain above Treasury bills — was attributable to just 4% of listed companies. The majority of individual stocks, about 58%, actually underperformed Treasury bills over their lifetimes. And the median individual stock return was negative.

This means that if you pick a random stock and hold it for its entire listed life, you have a greater than 50% chance of losing money or earning less than risk-free Treasury bills. The stock market’s impressive long-term returns are driven by a relatively small number of extreme winners — companies like Apple, Microsoft, Amazon, and Google — that generate enormous returns that more than compensate for the many losers.

The implications for concentration are clear: unless you can reliably identify which 4% of stocks will be the big winners in advance — and there is no evidence that anyone can do this consistently — concentrating your portfolio in a few stocks is a high-risk proposition with the odds stacked against you.

Consider the investor who put everything into General Electric in 2000, when it was the most valuable company in the world. Or the investor who went all-in on Lehman Brothers, Enron, or WorldCom. These were not obscure, risky startups. They were blue-chip companies widely considered to be safe investments. Concentration risk can destroy portfolios even when the underlying companies seem bulletproof.

The 2022 bear market provided a fresh wave of painful lessons. Investors who concentrated in high-growth technology stocks — companies like Peloton (down ~95% from peak), Zoom Video (down ~85%), or Roku (down ~90%) — suffered catastrophic losses. These were all popular, widely followed companies that seemed like obvious winners during the pandemic. An investor who held a diversified index fund, by contrast, experienced a painful but manageable drawdown of about 25%.

Diversification does not mean owning 500 stocks in the same sector or buying five different tech ETFs. True diversification means spreading your investments across multiple asset classes (stocks, bonds, real estate), multiple geographies (US, international developed, emerging markets), multiple sectors, and multiple investment styles (growth, value, small-cap, large-cap). The goal is to ensure that no single investment, sector, or geographic region can cause catastrophic damage to your overall portfolio.

Selling Winners Too Early, Keeping Losers Too Long

One of the most well-documented behavioral biases in investing is called the disposition effect — the tendency to sell winning positions too quickly and hold losing positions too long. First identified by Hersh Shefrin and Meir Statman in 1985, the disposition effect has been confirmed in dozens of subsequent studies across different markets and time periods.

The psychology behind it involves two powerful forces. First, there is the desire to lock in gains. When a stock you own rises 30%, your brain immediately focuses on the possibility of losing those gains. “I should sell before it goes back down” becomes an almost irresistible thought. You sell, feel a rush of satisfaction, and bank your profit. But the stock keeps going up. And up. And up. You left massive returns on the table because you could not tolerate the uncertainty of continuing to hold.

Second, there is the reluctance to realize losses. When a stock drops 30%, selling feels like admitting defeat. As long as you hold, the loss is “only on paper” — it is not real yet. Your brain convinces you that the stock will eventually come back, and when it does, you will be vindicated. So you hold. And hold. And the stock drops further. What started as a 30% loss becomes 50%, then 70%, then sometimes 90% or more.

Barber and Odean studied this effect using brokerage account data and found that investors were approximately 50% more likely to sell a winning position than a losing one. This is exactly backwards from what would be optimal. In the study, the stocks investors sold (the winners) went on to outperform the stocks they held (the losers) by an average of 3.4 percentage points over the subsequent year.

The tax implications make this behavior even more damaging. When you sell a winner, you trigger a taxable event (unless the investment is in a tax-advantaged account). When you hold a loser, you miss the opportunity to harvest that tax loss — selling the loser, booking the loss for tax purposes, and redeploying the capital into something with better prospects.

Peter Lynch, the legendary manager of the Fidelity Magellan Fund, described this pattern memorably: investors are “pulling the flowers and watering the weeds.” They nurture their worst investments with hope and patience while cutting down their best investments at the first sign of profit. It is a reliable recipe for a portfolio full of underperformers.

The disposition effect is closely related to another concept called the sunk cost fallacy — the tendency to continue investing in something because of what you have already invested, rather than based on its future prospects. An investor who bought a stock at $100 and watched it fall to $40 often cannot bring themselves to sell because they “cannot afford to take a $60 loss.” But the stock does not know what you paid for it. The question is not “How much have I lost?” but rather “Is this the best use of my money going forward?” If the answer is no, sell and redeploy.

How to Fix Each Problem

Understanding the behavioral traps is only half the battle. The other half is building systems and habits that prevent you from falling into them. Here is a specific, actionable fix for each problem we have discussed.

Fix the Buy High, Sell Low Cycle: Automate Your Contributions

The single most effective defense against buying high and selling low is dollar-cost averaging with automated contributions. Set up automatic transfers from your bank account to your brokerage account on a fixed schedule — weekly, biweekly, or monthly — and invest that money according to your target allocation regardless of what the market is doing.

When the market is high, your fixed contribution buys fewer shares. When the market is low, it buys more shares. Over time, this automatically produces an average purchase price that is lower than the average market price. More importantly, it removes the decision of when to invest from your emotional brain. The money moves, the shares are purchased, and you never have to decide whether “now is a good time to invest.”

Fix Performance Chasing: Use Index Funds as Your Core

The simplest way to eliminate performance chasing is to build your portfolio around broad-market index funds. When you own the entire market, you cannot chase sectors or styles — you own all of them. A portfolio built on a total US stock market index fund, a total international stock market index fund, and a total bond market index fund is inherently resistant to performance chasing.

If you still want to pick individual stocks or invest in specific sectors, limit that allocation to 10-20% of your portfolio. Keep the core in index funds and play with the satellites. This way, even if your stock-picking is terrible, the damage to your overall wealth is contained.

Fix Overtrading: Implement a 48-Hour Rule

Before making any trade that is not part of your regular automated investing, implement a mandatory 48-hour waiting period. Write down the trade you want to make, the reason you want to make it, and what you expect to happen. Then wait 48 hours. If you still want to make the trade after two days of reflection — and the rationale still makes sense on paper — go ahead. You will be surprised how many “urgent” trades feel far less compelling after two days of cooling off.

Fix Emotional Reactions: Create a “Bear Market Protocol”

Write a one-page document right now — while you are calm and rational — that describes exactly what you will do during the next bear market. It should include statements like:

• I will not check my portfolio more than once per month during a bear market.
• I will not sell any positions unless my fundamental thesis has changed.
• I will continue my automatic contributions on schedule.
• I will consider rebalancing into stocks if they fall more than 20% below my target allocation.
• I will not watch financial news for more than 15 minutes per day.

Print this document. Put it in an envelope labeled “OPEN DURING BEAR MARKET.” When the next crash comes — and it will come — open the envelope and follow the instructions your calm, rational self wrote.

Fix the Lack of a Plan: Write an Investment Policy Statement

An Investment Policy Statement (IPS) is a document that formalizes your investment plan. It does not need to be complicated. A good IPS covers your goals, time horizon, target asset allocation, rebalancing rules, and criteria for making changes. The act of writing it down forces you to think through decisions in advance, when your judgment is not clouded by market volatility.

Here is a simple template:

Investment Policy Statement - [Your Name]
Date: [Date]

Goals: Retire at 60 with $X in today's dollars
Time Horizon: 30 years
Risk Tolerance: Moderate (can tolerate 30% drawdown)

Target Allocation:
  - US Stocks (Total Market Index): 50%
  - International Stocks (Total Intl Index): 20%
  - Bonds (Total Bond Index): 25%
  - REITs: 5%

Rebalancing: Annually in January, or when any
  allocation drifts more than 5% from target

Changes: No changes unless life circumstances
  change (job loss, marriage, new child, etc.)
  Market movements alone are NOT a reason to
  change the plan.

Fix Concentrated Bets: Follow the 5% Rule

A simple but effective rule: no single stock should represent more than 5% of your total portfolio. If a position grows beyond 5% due to appreciation, trim it back to 5% and redeploy into your diversified core. This ensures that no single company can cause catastrophic damage to your wealth, while still allowing you to benefit from individual stock positions.

Fix the Disposition Effect: Use the “Would I Buy It Today?” Test

For every position in your portfolio, regularly ask yourself: “If I did not already own this stock, would I buy it today at the current price?” If the answer is no, sell it — regardless of whether you are sitting on a gain or a loss. Your purchase price is irrelevant to the stock’s future prospects. What matters is whether the investment makes sense going forward.

For tax purposes, consider harvesting losses actively. When a position is down and the thesis has weakened, selling not only frees up capital for better opportunities but also generates a tax loss that can offset gains elsewhere in your portfolio.

Conclusion

The stock market has been one of the greatest wealth-building tools in human history. Over the past century, it has delivered average annual returns of roughly 10%, turning patient investors into millionaires and funding retirements across generations. And yet, the average investor consistently fails to capture those returns — not because the market is rigged, not because they lack information, and not because they are unintelligent.

They fail because they are human.

The behavior gap is not a flaw that can be fixed with more education alone. Knowing about loss aversion does not make losses less painful. Understanding recency bias does not make the latest market trend feel less compelling. Reading about the disposition effect does not make it easy to sell a loser and hold a winner.

What works is building systems that account for human nature rather than pretending it does not exist. Automate your contributions so you never have to decide when to invest. Use index funds so you cannot chase performance. Implement waiting periods so you cannot overtrade impulsively. Write down your plan so you have something to follow when emotions are screaming at you to deviate.

The irony of investing is that the less you do, the better you tend to perform. The investor who sets up automatic contributions to a diversified index fund portfolio and never looks at it will almost certainly outperform the investor who checks their portfolio daily, watches financial news religiously, and makes frequent trades based on the latest headline.

The market will continue to go up over time. It always has, despite wars, pandemics, financial crises, and technological disruptions. Your job as an investor is not to outsmart the market. It is to get out of your own way long enough to let the market do its job.

Stop trying to be clever. Start being disciplined. The gap between market returns and your returns is entirely within your power to close — and the best time to start closing it is today.

References

• Dalbar Inc. — “Quantitative Analysis of Investor Behavior (QAIB),” Annual Reports (1994–2023). dalbar.com
• Morningstar — “Mind the Gap: A Report on Investor Returns in the United States,” Annual Reports. morningstar.com
• Barber, Brad M. and Odean, Terrance — “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors,” The Journal of Finance, Vol. 55, No. 2 (2000).
• Barber, Brad M. and Odean, Terrance — “The Behavior of Individual Investors,” Handbook of the Economics of Finance, Vol. 2 (2013).
• Bessembinder, Hendrik — “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics, Vol. 129, No. 3 (2018).
• Shefrin, Hersh and Statman, Meir — “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” The Journal of Finance, Vol. 40, No. 3 (1985).
• Kahneman, Daniel and Tversky, Amos — “Prospect Theory: An Analysis of Decision under Risk,” Econometrica, Vol. 47, No. 2 (1979).
• JP Morgan Asset Management — “Guide to the Markets,” Quarterly Reports. am.jpmorgan.com
• Vanguard — “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha,” Research Paper (2019). vanguard.com
• Richards, Carl — “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money,” Portfolio/Penguin (2012).