Essays on individual investors’ portfolio performance and investment mistakes

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Global financial markets experience cyclical movements that lead to significant losses for individual investors at irregular intervals. Carl Schuster explores the portfolio performance and investment errors of these investors, addressing key questions in behavioral finance: How much do individuals lose in common stock? How does success vary across financial instruments? Can financial advisors rectify individual mistakes? His analysis utilizes a comprehensive data set from a large online broker, encompassing detailed financial and socio-demographic information from over 70,000 private investors over 11 years. Schuster reveals that private investors' stock portfolios incur substantial risk-adjusted return losses compared to domestic benchmarks. He identifies a consistent ranking of financial instruments by performance, with funds and bonds yielding the best results, followed by stocks, certificates, and options. Advanced analyses indicate that consulting a financial advisor can mitigate investment errors, although the effectiveness of this advice is heavily influenced by the alignment of interests between the advisor and the investor. The findings are significant for academics, regulators, practitioners, and individual investors worldwide.