Barber and Odean looked at the trading activity at a discount broker between February 1991 and December 1996. They broke down the investors into quintiles based on their portfolio turnover. The highest turnover group had a 10% annualized return, while the lowest turnover group had a 17.5% return.
The other study which seemed to be a popular reference a couple of years ago was made by Dalbar. They looked at mutual fund returns from 1984 through 2000. The average fund returned 14% over that time period. But the typical investor had only a 5% return.
This is apparently an ongoing study. The 1984 through 1996 numbers were 16% and 6%. The 1984 through 2002 numbers were 12.22% and 2.57% (see Halbert below). The latest numbers (apparently 1984 through 2003) are 12.98% and 3.51%.
Here's what Richard Band said about it on his 8/28/03 hotline
It's a scandal nobody in the fund business wants to talk about. The folks from Dalbar, the Boston mutual fund research organization, have just released their latest study showing how well (or poorly) investors fared with their mutual funds. Dalbar analyzes cash flows into and out of the fund industry. For the 19 years from 1984 through 2002, the researchers found that the average equity-fund investor earned a compound return of only 2.57% a year. Meanwhile, the S&P 500 index returned 12.22%.Halbert discussed the Dalbar study in his e-letter. Travis Morien looked at both studies plus a few others.
... The real killer is that too many investors chase "hot" funds. They buy whatever funds have rolled up big profits in the recent past (such as the technology funds in the late 1990s). As a result, the average investor arrives late to the party. Then, turning a mistake into a catastrophe, John Doe and Mary Roe dump the same funds after a stretch of poor performance—generally near the bottom of the market.
[8/14/06] The Odean/Barber studies are mentioned briefly in Belsky and Gilvich's book Why Smart People Make Big Money Mistakes which is excerpted in the book What Do I Do With My Money Now?
[5/10/08] Mauldin writes more on Why Investors Fail
[7/10/11] links from Cougar3 (3/10/10):