For smart people with a do-it-yourself mindset, managing your own investment portfolio may seem like a no-brainer
There’s no shortage of media outlets, book authors, stock trading platforms, and other entities whose advertising encourages people to “take control of their financial future.”
The firms pursuing these individuals under the premises of independence and control play upon too many self-perception biases to discuss in a single article.
However, as Warren Buffett says, “Investing is simple, but not easy.”
In other words, taking an investing class or watching someone trade stocks based upon their proprietary trading system, is not the same as doing it (Illusion of Skill Acquisition).
Should You Manage Your Own Investments? Probably Not…
A landmark study by Terrance Odean and Brad Barber (2000) analyzed 66,000 discount brokerage accounts and found these self-managing households underperformed stock market indexes by 2%-3%, primarily due to excessive trading.
Interestingly, but not surprisingly, Odean and Barber also found that men trade 45% more than women, leading to their underperformance as a demographic (with single men trading 67% more than single women).
The primary reason for these investors’ excessive trading was overconfidence in their stock-picking skills.
Overconfidence Bias May Be Tanking Your Returns
Most people exhibit the traits of Overconfidence Bias in some aspect of their lives. That is, they overestimate their ability, knowledge, and control over a situation.
Researchers have illustrated this phenomenon in a wide variety of domains. The most famous research is a 1981 study where 93% of Swedish drivers claimed they were above average1.
Even when they have knowledge that probabilities are stacked against them, high achievers love to believe they can beat the odds.
That’s why entrepreneurs start businesses, despite the minuscule odds of achieving a dream exit that funds their lifestyle and fulfills their need for relevancy.
The Dangers of Overtrading
In the world of investing, no emotional or cognitive bias has the potential to cause more damage to your portfolio than overconfidence.
Countless traders (not investors) have “blown up” their investment accounts due to misplaced belief in their stock picking ability and trading system.
Overconfident investors are more likely to overtrade, react emotionally to events, and use excess leverage in an attempt to boost their returns.
While (predominantly male) day traders often get a huge adrenaline rush from winning trades, they are especially susceptible to overconfidence.
However, according to the Securities and Exchange Commission, only 7% of day traders remain active after five years, and only 1% are consistently profitable over the long term.
Why Do Individual Investors Try To “Beat The Market”?
Because of market volatility and the unpredictability of financial markets, it’s not difficult to achieve a rate of return that’s higher than the S&P 500 for short periods of time.
Investors who take credit for this out-performance are more than likely guilty of Self-Serving Bias.
That is, attributing successes and positive outcomes to personal skills, traits, and actions, while blaming failures or negative outcomes on external factors beyond their control.
A corollary is Illusion of Control, where you believe you have more control over outcomes than you actually do.
In both cases, wins are attributed to skill, rather than luck or “being in the right place at the right time.”
There were many high-profile individuals who achieved “guru investor” status for their promotion of technology stocks during the “tech bubble” of the late 1990s, a period of 800% returns in tech indexes.
When the tech bubble burst, dropping 82% between 2000 and 2002, these gurus were nowhere to be found.
Most of the time, investors who beat the market are simply the beneficiaries of fortunate timing.
How Do Professional, Actively-Managing Investors Perform?
Professional, actively-managing investors in the mutual fund industry know what they’re up against, and the massive flow of individual investor money into passive index mutual funds and exchange-traded funds shows they understand too.
Statistics from Morningstar show that only 13% of large-cap, actively managed funds beat their index for the ten-year period ending 12/31/2025 (after accounting for the 38% of funds that no longer existed at the end of the ten-year period)2.
Sandene Strategies’ Investment Portfolios
At Sandene Strategies, we’re humble about financial markets and concede to the short-term volatility of stocks and the futility of trying to consistently beat the market.
Our investment philosophy is centered on each client’s risk tolerance and the time horizon of their long-term financial goals.
Rather than measuring relative performance against an index, we measure absolute performance against the goals in your financial plan.
We build investment portfolios and make periodic adjustments based upon our knowledge of behavioral economics and facts discovered through evidence-based investment research.
To discuss these ideas in more detail, shoot me an e-mail Jeff.Sandene@LPL.com or better yet, let’s schedule a conversation.
1 Svenson, Ola, Are We All Less Risky and More Skillful than Our Fellow Drivers?, Acta. Psychologica, 1981, 47: 143-148.
2 Morningstar’s US Active/Passive Barometer, Year-End 2025.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)