How successful is a layman at stock trading?

[Mosier]

Are people making stock trades through brokers like Scottrade any better or worse, on average, than a random computer picking stocks? Is a non-experienced stock picker likely to lose their money, or more likely to stay more or less in line with the general trend of the market?

[amarone]

Worse. Individual traders trade at the wrong time and let emotion get in the way (look at everyone selling now, when prices are down - they would have been better off selling a couple of months ago, when they were high). They end up buying high and selling low. And they rack up fees by trading too often.

While this article (http://moneywatch.bnet.com/investing/blog/wise-investing/why-you-shouldnt-listen-to-jim-cramer/723/) is actually a critique of Jim Cramer, it includes:

Professors Brad Barber and Terrance Odean have done a series of studies on individual investors. The following summarizes their findings:

- Before costs, the stocks that individuals buy underperform, and the stocks they sell go on to outperform.
- The more individuals trade, the worse the results. Individuals that trade the most underperform on a risk-adjusted basis by 10 percent per year.
- Investment clubs underperformed by more than 4 percent per year on risk-adjusted basis.

[septimus]

Worse. Individual traders trade at the wrong time and let emotion get in the way (look at everyone selling now, when prices are down - they would have been better off selling a couple of months ago, when they were high). They end up buying high and selling low. And they rack up fees by trading too often.

Yes. Some professional strategists may even exploit this by determining what small investors are doing (e.g. via odd-lot trade statistics) and doing the opposite. Since any trade by an individual is likely to be wrong, Buy-and-Hold is a good approach. If you buy a stock and sell it ten years later, you've made at most two poor trades in a decade! :cool:

In OP you speak of stock-pickers (who might hold a stock for a year or more) but title speaks of "trading" which might involve holding a stock for a few days or less. I think the cases need to be separated.

There are trading strategies that have an excellent chance at making a little money, and may deceive a day-trader to think he's smarter than he is. In another thread an expert trader referred to such strategies as "gathering pennies in front of a bus." Eventually it leads to a big loss. (A simple example of such a strategy might be the Martingale of casino fame, where you almost always win a dollar, but sometimes lose your entire bankroll.)