If you're trading individual securities, you're almost certainly making a mistake. Because most professional managers can't outperform their benchmarks, and there's little reason to think that individuals can.
Interpretation
Investing in individual stocks is generally risky for individuals, as even professionals struggle to beat the market.
This quote by Richard Thaler emphasizes the difficulty that individual investors face when trying to outperform the overall market by selecting individual stocks. It suggests that, despite the allure of personal stock-picking, the statistical evidence shows that even skilled professionals often underperform the market benchmarks, indicating that the chances of success for individual investors using similar strategies are quite low.
In practice
During a finance seminar, a speaker might use this quote to illustrate the challenges of active investing.
The ability of businesses to monitor our behavior is already a fact of life, and it isn't going away. Of course we must protect our privacy rights. But if we're smart, we'll also use the data that is being collected to improve our own lives.
When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
Academia does not provide many opportunities for immediate gratification. You work for two years on a project, it takes two more years to get it published, and then you start hoping someone might read it.
In the world of traditional economics, it shouldn't matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.
My thesis topic was 'The value of a human life.' I asked people a question: 'Suppose you had some risk, a one in a thousand risk of dying - how much would you pay to eliminate it?'
A fiduciary standard means, basically, put the interests of the client first. No excuses. Period.
If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there's a lot less risk in the overall system.
The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.
The average investor's return is significantly lower than market indices due primarily to market timing.
I am more and more impressed with the possibilities of history's repeating itself on many different counts. You don't get very far in Wall Street with the simple, convenient conclusion that a given level of prices is not too high.
Nothing is simpler than owning the stock market and holding it forever, and that's essentially the idea behind the index fund.
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