Learning by Trading
Read the paperopens doi.org in a new tab
What they found
Using the full Finnish investor registry from 1995 to 2003, the authors asked whether individual investors get better with experience. They found two kinds of learning: some investors improved their performance and reduced their disposition effect as they gained experience, but a larger effect was that investors who performed poorly simply stopped trading. Once this survivorship is accounted for, the amount of actual skill improvement is modest, and a sizeable fraction of investors learned that they were bad at trading and quit.
What you can use
- The main way people 'learn' from trading is by discovering they are not good at it and stopping.
- Genuine improvement with experience exists but is smaller than it looks, because the losers drop out of the data.
- Track your own results with the honesty of a registry: if your first year or two is bad, the evidence says that is informative.
Caveats
Finnish market and investors; measures of performance are noisy at the individual level. Learning is inferred from changes in behavior, not directly observed.
Tags: retail, learning, survivorship, experience
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.