In the world of speculative trading, approximately one-third of all existing traders are forced to stop trading each year. They lose most of their money or at least become sufficiently discouraged to stop trading.
The statistics also indicate that about 90 to 95% of all speculative traders lose money each year, while only a fraction of a percentage of traders make really big money.
Life is obviously not easy for the average trader and for the average investor the results of investing are often not much better even when they use a professional fund manager. We are of course talking about solid investment strategies now not speculative trading.
Why this lack of success for the average investor?
The professional fund manager has no difficulty outperforming the average investor operating on his own so why doesn’t an investor who uses such a manager earn the rewards.
It would seem that the same psychological factors that cause the average person to lose when investing directly in the market also results in that same investor making mistakes in investing with professional money managers.
As an example - the average investor is tempted to invest with a manager after returns have been running hot and tends to withdraw money at the bottom of the decline, often just before or near an upturn.
A very successful professional manager has noted that he started out managing about 12 small accounts in the 1960’s. Over the years he noticed that some of the accounts made a lot of money while others did not. Yet he was trading all of his managed accounts in the same way.
The only variable was when clients added or withdrew money. Generally, those who made the most money had kept their funds with him through good times and bad.
Those who made least money tended to withdraw funds out after a losing streak, usually just prior to the onset of some profits.
In addition, they would add money after a long winning streak.
A thought-provoking observation for all of us.
If we are to be successful in creating or protecting a retirement fund we must all be aware of the very human urge to bail out when the going gets tough, to doubt the wisdom of our earlier decisions. If we can stay strong, we will have made a significant step towards financial independence.
