What percentage of people lose money in the stock market?

[hanhao]

how many percentage of people lose money in stock market?

i heard my friend say 95%
anyone got a link or research data to support this?

 

[dbphoenix]

It's more like 55-60%. Google "odean".

 

[peto]

It's more like 55-60%. Google "odean".

Doesn't it depend on how you measure it? Terrance Odean seems to have looked at a snapshot of the accounts at a brokerage and come up the above %ge (please correct me if I'm wrong). Is it not probable however that the 40% winners are going to stay in the market for a good many years, until their luck/edge/skills run out or they retire. Meanwhile the 60% losers will shortly run out of funds or leave the brokerage dispirited, thus creating a much higher turn-over of losing players than winners.

The type of brokerage he researched will also be relevant. One catering mainly to buy-and-hold investors might reasonably be expected to have a higher percentage of happy clients than one full of daytraders.

I suspect the figure in the first post is not far from the truth, when one is comparing the total number of new entrants to short-term trading, to those remaining with positive accounts a few years later. capitalspreads on this forum is a SB bookie who has made a couple of assertions, but I suspect these figures do not take into consideration the turnover issue above, and a potential reporting problem where the full truth might frighten away the much needed new entrants! http://www.trade2win.com/boards/85850-post28.html and http://www.trade2win.com/boards/271256-post5.html

 

[dbphoenix]

On the other hand, suspecting that something is or is not true is considerably different from conducting a professional study. The 95% figure apprarently comes from something that somebody thinks somebody said in an article somewhere some time.

As for turnover, this is not an issue unless one changes the population being studied, in which case a new set of figures apply.

I've never understood why traders cling to this 95% figure. Perhaps they want to make trading seem more difficult than it is.

Db

 

[tune]

Perhaps they want to make trading seem more difficult than it is.

Db

That is exactly what a friend of mine said when when she saw some of the full-on, whacked out, completely over the top, hypercolour, "art" indicator charts that are part of my chart collection. As an artist herself she then spent half an hour talking about the mind of these other artists. I should have written it down. It was a bit cruel but bloody funny. A bit like that Brian Sewell fella.

 

[peto]

On the other hand, suspecting that something is or is not true is considerably different from conducting a professional study. The 95% figure apprarently comes from something that somebody thinks somebody said in an article somewhere some time.

As for turnover, this is not an issue unless one changes the population being studied, in which case a new set of figures apply.

I've never understood why traders cling to this 95% figure. Perhaps they want to make trading seem more difficult than it is.

Db

One group of people for whom the figure is of interest is potential or aspiring traders entering (or considering entering) the arena. They might reasonably ask what %ge of their group could be expected to have a positive account x years down the line.
Turnover then becomes very much the issue, and Odean's figure of profitable/unprofitable traders in a brokerage at any one moment is, on its own, quite inadequate, no matter how professional his study.

 

[Trader333]

In my view this is all about timing. On any individual trade I may be a net loser but over a longer time frame I am a net winner. Some people trade over years but their current situation may be negative. Therefore any snapshot in time cannot be accurate as it cannot factor in multiple time frames of trading objectives. As a rule of thumb though it is not a bad policy to assume that the shorter the time frame the more random the price movement is likely to be.


Paul

 

[dbphoenix]

One group of people for whom the figure is of interest is potential or aspiring traders entering (or considering entering) the arena. They might reasonably ask what %ge of their group could be expected to have a positive account x years down the line.
Turnover then becomes very much the issue, and Odean's figure of profitable/unprofitable traders in a brokerage at any one moment is, on its own, quite inadequate, no matter how professional his study.

I disagree. They might reasonably ask, but so what? Given the failure rates regarding anything (opening a restaurant, becoming a doctor), anyone paying much attention to them would never leave the house. And since the 95% rate is for all intents and purposes a fiction, what good does it do to perpetuate it?

Regardless of the failure rate, actual or imagined, anyone who really wants to trade is going to believe that he is the exception, which is why sites having to do with the subject do so well.

Picks and shovels.

Db

 

[robq]

It's more like 55-60%. Google "odean".

Thanks for the link. Unless I misinterpreted the figures, quite possible, failure rates appear to be greater thhan 80%

From the article – Do individual day traders make money? Barber et al. 2004

"There us considerable cross-sectional variation in the performance of day traders. Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20% of day traders earn profits net of transaction costs.

Our analysis makes clear the need for comprehensive risk disclosure. Prospective day traders should be apprised of their likelihood of success: only two out of ten make money, fewer do so consistently. " (page 21)

From table 4 page 26, 4482 of 51347 (8.7%) of investors were profitable over a six month period. 1455 or 32%of these, 2.8% of 51347, were profitable during the subsequent seventh month.

robq

 

[arabianights]

I think that the majority of people make money in the stock market, by buying and holding... not everyone is a trader.

 

[_coda]

Thanks for the Odean heads up.

I haven't had time to review the papers there but a quick scan shows that the one paper specific to day traders is based on Taiwanese data from 1995 to 1999. The summary quotes 8 in 10 as losing. Maybe this is the source of the 80% losers figure?

Further nuggets:
Daytraders account for 20% of total daily volume and 97% of daily activity.
1% of daytraders account for 50% of of total trading.

The paper is a little bit stale I think given how radically things have changed since 1999.

Would be great if this research could be updated, but I don't see this really being something that the only reliable source of data, the brokers, would be particularly interested in having published.

Also, I'm sure a high DIY failure rate suits the institutional investors.

 

[Atilla]

Thanks for the link. Unless I misinterpreted the figures, quite possible, failure rates appear to be greater thhan 80%

From the article – Do individual day traders make money? Barber et al. 2004

"There us considerable cross-sectional variation in the performance of day traders. Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20% of day traders earn profits net of transaction costs.

Our analysis makes clear the need for comprehensive risk disclosure. Prospective day traders should be apprised of their likelihood of success: only two out of ten make money, fewer do so consistently. " (page 21)

From table 4 page 26, 4482 of 51347 (8.7%) of investors were profitable over a six month period. 1455 or 32%of these, 2.8% of 51347, were profitable during the subsequent seventh month.

robq

Interesting point about stats is you can tell any story you want.

Interesting stats might be:

1. What % of traders quit trading when and
2. What % of their capital today invest as starters and
3. What % of their capital do they lose before leaving
4. What % of traders who continue break even when?
5. Finally when they become consistently profitable?

There is always the question that those traders who quit - hypothetically - the same % as the ones who continued may well have succeeded.

I mean there can be many other factors like level of education, background, profession, temperament and so forth.

Trying to baseline and provide accurate results without looking deeper into the sample pool is likely to be meaningless.

 

[peto]

Thanks for the link. ....

From table 4 page 26, 4482 of 51347 (8.7%) of investors were profitable over a six month period. 1455 or 32%of these, 2.8% of 51347, were profitable during the subsequent seventh month.

robq

A figure that low at that rate could be produced by random chance, after discounting commissions.

Perhaps another way to look at the issue is to ask "how many losing traders are necessary to finance one winning trader over a lifetime's career?"

 

[dbphoenix]

Interesting point about stats is you can tell any story you want.

Interesting stats might be:

1. What % of traders quit trading when and
2. What % of their capital today invest as starters and
3. What % of their capital do they lose before leaving
4. What % of traders who continue break even when?
5. Finally when they become consistently profitable?

There is always the question that those traders who quit - hypothetically - the same % as the ones who continued may well have succeeded.

I mean there can be many other factors like level of education, background, profession, temperament and so forth.

Trying to baseline and provide accurate results without looking deeper into the sample pool is likely to be meaningless.

These are typical of the sorts of questions that ought to be asked in order to come up with anything that is even remotely informative. But what most people ask is something like "what percentage of traders fail" without bothering even to define "trader" or "fail".

Makes for lots of posts, though.

 

[Rhody Trader]

The paper is a little bit stale I think given how radically things have changed since 1999.

I'd be curious to hear what you think has changed dramatically in this decade?

 

[_coda]

I'd be curious to hear what you think has changed dramatically in this decade?

The difference is the internet. It has enabled a two things. Firstly, the barrier to entry is much, much lower. We have online brokers, CFDs, Forex and Spreadbetting. Secondly, information glut. Sure the internet has been here since the early 90's but I certainly wasn't didn't have access to the services available today.

I admit I'm not qualified to form more than a subjective opinion - I wasn't doing more than buying Mutual funds (big mistake imo, but that's another thread) 10 years ago. So if you tell me I'm talking through my hat here, you're right, you got me - subjectively

But, if you try and tell me things are the same here as in Taiwan between 1995 - 1999 then pass the shaker please.

If you were trading back then I'd be interested in how things have not changed as the basics are probably fundamental to the whole process. For me personally, the big change is forex.

ciao

 

[Rhody Trader]

I would argue that relatively little has changed in stock trading over the last number of years. Low cost online brokers were readily available in the 90s and certainly the use of them by the punters contributed to the bull market of that time period. The big change in equities has been the development of the ETF area of the market. Let's face it, though. The speculators are not in the ETFs for the most part. They move too slowly for the action junkies, who prefer the likes of GOOG and RIMM.

I agree on the subject of forex, among other things, really altering the overall trading landscape for Joe Retail Trader, though. A lot of the folks coming into the markets now are doing so with forex as the destination, whereas 10 years ago it would have been stocks. The rapid development of the online platforms in that area has certainly played a major part, and the barriers to entry (as you noted) are lower. I still think most people on the street would think first of stocks when "trading" came up, but forex can't be too far behind.

 

[new_trader]

I'd be curious to hear what you think has changed dramatically in this decade?

I would say the proliferation of personal computers due to prices dropping as a result of the internet has changed the number and type of investor/trader over last 20 years. Computers were once things only geeks and nerds were interested in. The internet started hitting media headlines when all the ill-informed mums and dads wanted it shut down after some 10 year old child downloaded a picture of a naked woman. However, every 3rd moron wanted to know how they can access all this FREE “porn” and realised that they had to enter the domain of the geeks and nerds. Suddenly it was “cool” to own a computer. When all the ill-informed mums and dads realised you can download recipes, buy cheap holidays and send e-mails to long lost friends living overseas the internet was no longer a porn infested ‘evil’ entity, it was now the best thing since sliced bread.

After all the mums and dads and every 3rd moron got bored with downloading porn, recipes, buying cheap holidays and sending e-mails they set their sites on productivity and making money out of the internet, just like all those people they heard about on TV who made millions or even billions doing something on the internet. Some of these mums and dads and most of the morons looked for easy ways to make money and turned to the stock market.

There was a time when you had to do real research before buying and selling stocks like reading financial papers, contacting companies to get their accounts etc. You may even have had to do....heaven forbid...some manual financial calculations...with pencil and paper! This involves maths and using your head...!! But, human beings are basically lazy creatures and now computers means you don’t have to use your head or paper and pencils and rubbish. Computers have given mums and dads and every 3rd moron access to the “tools of the professionals” which tell them, yes, TELL them exactly when to buy and sell. Now, mums and dads and every 3rd moron believes they are savvy investors/traders.

 

[dbphoenix]

I would argue that relatively little has changed in stock trading over the last number of years. Low cost online brokers were readily available in the 90s and certainly the use of them by the punters contributed to the bull market of that time period. The big change in equities has been the development of the ETF area of the market. Let's face it, though. The speculators are not in the ETFs for the most part. They move too slowly for the action junkies, who prefer the likes of GOOG and RIMM.

I agree on the subject of forex, among other things, really altering the overall trading landscape for Joe Retail Trader, though. A lot of the folks coming into the markets now are doing so with forex as the destination, whereas 10 years ago it would have been stocks. The rapid development of the online platforms in that area has certainly played a major part, and the barriers to entry (as you noted) are lower. I still think most people on the street would think first of stocks when "trading" came up, but forex can't be too far behind.

I agree on the subject of stocks, disagree on the subject of forex. Forex is just another flavor.

Back in the day, we all thought that computers and the internet were going to make a big difference. But the only thing that's changed is that beginners make the same mistakes faster.

 

[Rhody Trader]

I agree on the subject of stocks, disagree on the subject of forex. Forex is just another flavor.

That's basically what I was saying. Forex has become the second big flavor because it's so easy to jump into.

... But the only thing that's changed is that beginners make the same mistakes faster.

That was exactly my thought. Computers haven't changed anything but the speed of transaction flow. Traders made the exact same mistakes when they had to call their broker on the phone (yeah, I remember those days) as they do today.