How to beat other investors’ returns by 327%
The ugliest number in investing is 2.4%.
According to a few different studies looking back over the last twenty to thirty years, 2.4-2.6% is the annual return made by the average stock market investor.
Today I want to show you how investors go wrong, how to put it right, and how much money its worth to you.
The problem and the solution
2.4% per year lags pretty much any investing strategy you can name. How do investors do so badly?
It basically comes down to one thing: over-trading. Investors call their brokers too often. They buy a stock, hold onto it for a few weeks, get impatient and then sell it on again. They’re addicted to dealing in stocks, rather than owning them. Owning stocks is what makes you rich.
You see the problem is that every time an investor calls their broker, they’re giving them a little money. Over time, that number adds up.
There are hard numbers to back this up. In 1960, the average period that US investors owned a stock was eight years. By 1970 it had dropped to five years. By 1980 it had dropped to just under three years. By 1990 it was down to 26 months, by 2000 to just 14 months, and in 2010 just six months. Today, the average holding period for stocks is about 17 weeks. 17 weeks!
The other problem with over trading is that investors tend to buy and sell at just the wrong times. They tend to buy when the market is at its highest and sell when the market is at its lowest.
These are costly mistakes. But the good news is that they’re incredibly easy to fix. In fact, there are four simple changes that any investor can make to dramatically boost their average return. That’s where the 327% in the headline came from – by making these four simple adjustments, I’m saying that an ordinary investor can boost their returns by 327%.
I told an audience of Penny Share Letter investors exactly how to do it at a talk two weeks ago. Now, you can listen in too.