From a Q&A I had earlier this year with Patrick O’Shaughnessy author of Millennial Money: How Young Investors Can Build a Fortune:

We always want to do something with our portfolios, and usually at exactly the wrong time. As Nick Murray says, “You can’t, as we’ve seen, build and hold wealth without equities. But the converse is even more importantly true: equities can’t do it without you.” Controlling your behavior matters more than anything. [emphasis added]

It is worth keeping this in mind when we think about what most discussions about investing revolve around. They usually involve discussions about alternatives: passive vs. active, low volatility vs. high beta, cap weighting vs. equal weight, domestic vs. international, etc. In the broad scheme of things for most investors these decisions on the margin matter very little for their ultimate returns. What matters is that they can devise a strategy and stick to it. The following quote from my book captures this sentiment:

In the end, we are better off with a suboptimal strategy that we can follow, rather than one we don’t fully understand and will abandon at the first sign of trouble.

This is all to preface a research paper entitled “Abusing ETFs.”* The abstract is below:

Do ETFs, one of the most popular investment products in recent times, benefit individual investors? Using data from one of the largest brokerages in Germany, we find that individual investors do not improve their portfolio performance, even before transactions costs, by using these passive products. Using counterfactual analysis, we show that this occurs mostly from buying ETFs at “wrong” points in time rather than choosing “wrong” ETFs. Therefore, adopting a buy-and-hold strategy is more important than selecting better ETFs for individual investors

The point is not that ETFs are bad. Low cost, passive vehicles don’t help investors if they fall into the trap of trying to trade them for gains. Invariably we buy high and sell low. Controlling our investing behavior is difficult just as it is other parts of our lives as well. Being aware that our behavior matters, first and foremost, is a necessary first step in becoming better investors.

*Bhattacharya, Utpal and Loos, Benjamin and Meyer, Steffen and Hackethal, Andreas, Abusing ETFs (November 22, 2014). Kelley School of Business Research Paper No. 2014-46. Available at SSRN: or




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