BAD NEWS. 'Quantitative analysis of investor behavior' dated from 2004 / the only one I came across/ did a research on retail traders who invested with mutual funds and it says TIMERS lose the most. Systematic investors / monthly buy a little bit/ do a little better than inflation. Timers,mind you, lose all the time..So it's not 95% , it's almost 100%.. You can google it easily.. Well, beating Simons is practically impossible - who do we win this money from then as he already devours millions of retail accounts ?? oh, one more thing, I don't think timers behavior differ regardless of the market or instrument they invest/trade..
The study is described in Kahneman's latest book "Thinking, fast and slow". The reason of the misunderstanding you've mentioned is that there are no "risk-adjusted returns". You can not measure risk. Instead, you usually adjust the returns by some proxy of risk, like variance or drawdown. For different reasons, both are poor proxies, thus the result is highly subjective. In my opinion, using "risk-adjusted returns" makes no sense when a scientific study requires objective, reproducible data.
It's on my to-read list, I might get to it soon. As I said, I have read a different paper. (a) I don't know if you do trade for a living and if you do, what do you trade. However, the fact that you believe that is it possible at all to evaluate any returns without adjusting the risk is pretty sad and says a lot about you as a trader. (b) I have seen many social studies that attribute performance to luck. Trading performance is not an exception, there is a general school of sociology that success in life is mainly due to a series of random events. Unfortunately, life is far more complex and treating it with statistical models is akin to sticking a stick in the ground and calling it a model for the Empire State Building.
sle: Understanding performance measurement and the role of risk is not very difficult, but still requires some basic math and statistics. I don't know what paper you read, but if you don't understand the limits of risk approximation and the usage of variance and drawdown, it makes not much sense to go on with the discussion. But if you're really interested in that, I can list here some books and papers that will enable you to discuss trading performance measurement methods without making a fool of yourself.
Real risk envelope >= 3.1416 * estimated risk envelope No. I'm not going to post the mathematical proof. If you take the above inequation as an axiom, then it's very easy to understand why most lose everything and will continue to do so. It's inevitable. Can't beat systemic entropy growth. Only God can.
Hallo Everyone, nice forum. Can I ask a question? Maybe I did not understand ( i am newbe), but a 3% return per year should not be less convenient than more safe investment instruments? So why people trade and most important, how is possible that there are people that avoid the 9-5 work allegedly living with the trading? Sorry if I am banal, but it is really important, since I discovered that I love to study the markets, and it looks to me that the fluctuation of the stocks are more rational than one can think(of course value investor in LT are more favorite than day traders). regards and really thank you for the attention, Ivano