Can people make money speculating in the stock market?
UC Berkeley Business School Professor Terrance Odean’s numerous research studies on trading conclude: “Our central message is that trading is hazardous to your wealth.””Specifically, a large fraction of day traders, more than eight out of ten, lose money, though a small fraction of day traders earn large persistent profits.” Odean’s research suggests that overconfidence plays an important role in keeping new traders coming into an arena where far fewer than 20% are profitable after costs. Studies in behavioral finance find that ¾ of all traders rate their prowess as “above average”, despite the obvious reality that only half of us are better than the other half. As brokerage firms know from their own data, the majority of individual day traders fail relatively early in their careers. One of my favorite studies of overconfidence came from the London Business School. Traders were shown price patterns and asked to figure out the market’s next direction and indicate their confidence in the
