In his recent interview on The Meb Faber Podcast, Richard Thaler explained why investment returns are not as good as you think they are, unless they are being risk-adjusted in some way. Here’s an excerpt from the interview:

Thaler: One thing, and I think this applies to any place that people invest, specifically something that’s catered to people who are trading individual securities which my advice would be don’t do this.

And the reason is it’s hard, but a tool that I dare any retail brokerage firm to offer is to supply people with benchmark-adjusted rates of return. I don’t know whether you remember this old…there was this group of little old ladies that wrote a book.

They had an investment club and they had great returns and they wrote a book and it turned out they didn’t have great returns and they just had computed it wrong. And that’s not surprising. It’s really hard. If you’re buying and selling stocks, unless you have specific software, you’re going to do it wrong and you have to risk-adjust in some way?

And it’s not surprising that no one makes it easy for you to see how you’re doing compared to picking stocks at random.

Now, it might be that over the last year that Robinhood investors are doing better than the market precisely because they’re heavily invested in these memes stocks that seem to be selling for stratospheric prices, but over the long run, I think that would be very useful feedback.

You can listen to the entire interview here:

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