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Cutting errors

A team of economists at Goethe University in Frankfurt studied 5,000 German investors between 1999 and 2011 and found that, on average, the shares that they bought underperformed the market in the following month. This implies that the average investor can't spot good short-term share performance - a finding consistent with previous research by Brad Barber and Terrance Odean, two US economists who have also showed that investors, on average, underperform the market.

What's more, even above-average ability to spot short-term winners doesn't do much good. The team estimate that short-term stock-picking skill of one standard deviation above-average - equivalent to moving from average ability to just outside the top one-sixth - is associated with only 0.4 percentage points of higher risk-adjusted annual returns.

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