Why Smart Investors Trade Less (And How You Can Too)
What new research says about unlearning bad investing habits
If you’ve been in the stock market long enough, you’ve probably heard the old saying: “Time in the market beats timing the market.”
Sounds simple, right? But if it’s so obvious, why do so many investors fail to follow this advice?
A 2023 study sheds light on why we trade too much, why it hurts our returns, and—most importantly—why some investing mistakes can be unlearned while others might be hardwired into our psychology.
If you want to become a better investor, this research will change how you think about your own investing habits.
The Real Cost of Excessive Trading
If you’re investing for the long term, your biggest enemy isn’t the economy, inflation, or even market downturns. It’s your own behavior.
A large body of research has shown that most investors trade too much.
One of the most famous studies found that individual investors who traded frequently underperformed the market by an average of 6.5% per year after fees—Which is enough to derail most people’s retirement plans[1].
The study I’m diving into today confirms this:
More trading = worse returns (after accounting for transaction costs).
People trade too much due to two key reasons: inexperience and overreaction to short-term market movements.
Not all investing mistakes are fixable—some behavioral biases are nearly impossible to unlearn.
The research suggests that excessive trading isn’t just a mistake—it’s a habit many investors never break.