--- title: "Meaning & Key Takeaway of: The average investor does significantly…" description: "\"The average investor does significantly worse than a simple index... It's literally because of the way our brains are wired.\" — James O'Shaughnessy" image: "https://sms4smile.com/quotes/i/c00/james-o-shaughnessy-30493_average_the-average-investor-does-significantly_27654.jpg" --- # The average investor does significantly worse than a… ![“The average investor does significantly worse than a simple index... It's literally because of the way our brains are wired.” quote by James O'Shaughnessy](https://sms4smile.com/quotes/i/c00/james-o-shaughnessy-30493_average_the-average-investor-does-significantly_27654.jpg) [Download](https://sms4smile.com/quotes/i/c00/james-o-shaughnessy-30493_average_the-average-investor-does-significantly_27654.jpg) [Open image](https://sms4smile.com/quotes/i/c00/james-o-shaughnessy-30493_average_the-average-investor-does-significantly_27654.jpg) > “The average investor does significantly worse than a simple index... It's literally because of the way our brains are wired.” [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) ## About This Quote This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation. Investors underperform due to cognitive biases that favor active decisions over passive, market‑wide exposure. **In simple terms:** Behavioral bias hurts returns. Key Takeaway Passive indexing beats most active strategies. Themes behavioral finance market efficiency investment strategy cognitive bias risk management Mood cautious analytical inquisitive Type advice observation analysis When to use this quote - retirement planning - individual brokerage accounts - wealth management advisory - financial education seminars - portfolio construction workshops Key Concepts overconfidence loss aversion herding mental accounting Practical Applications - design low‑cost index funds - advise clients to adopt passive allocation Questions to Reflect On - How can investors mitigate bias when choosing funds? - What role does education play in improving outcomes? A Different Perspective Some skilled managers consistently outperform, suggesting skill can sometimes outweigh bias. ★ ★ ★ ★ ★ No ratings yet [Brains](https://sms4smile.com/quotes/about/brains/) [Customer](https://sms4smile.com/quotes/about/customer/) [Index](https://sms4smile.com/quotes/about/index/) [Investing](https://sms4smile.com/quotes/about/investing/) [Investor](https://sms4smile.com/quotes/about/investor/) ## Related quotes > [It may well be our brains are wired up to be slightly more optimistic than they should be.](https://sms4smile.com/quotes/vilayanur-s-ramachandran/it-may-well-be-our-brains-are-wired-up-to-be-slightly-more-optimistic/) [Vilayanur S. Ramachandran](https://sms4smile.com/quotes/author/vilayanur-s-ramachandran/) > [Our retinas and brains have been wired by a hundred million years of evolution to find outlines in a visually complex landscape. This helps…](https://sms4smile.com/quotes/seth-shostak/our-retinas-and-brains-have-been-wired-by-a-hundred-million-years-of/) [Seth Shostak](https://sms4smile.com/quotes/author/seth-shostak/) > [Millions of years ago, our brains became wired to remember about 150 people as 'close friends.'](https://sms4smile.com/quotes/peter-diamandis/millions-of-years-ago-our-brains-became-wired-to-remember-about-150/) [Peter Diamandis](https://sms4smile.com/quotes/author/peter-diamandis/) > [We next consider the rule that the investor does or should consider expected return a desirable thing and variance of return an undesirable thing.](https://sms4smile.com/quotes/harry-markowitz/we-next-consider-the-rule-that-the-investor-does-or-should-consider/) [Harry Markowitz](https://sms4smile.com/quotes/author/harry-markowitz/) > [The savvy investor is one who does not believe every rumor on the street and learns to read between the lines of newspaper reports.](https://sms4smile.com/quotes/sucheta-dalal/the-savvy-investor-is-one-who-does-not-believe-every-rumor-on-the/) [Sucheta Dalal](https://sms4smile.com/quotes/author/sucheta-dalal/) > [A decade ago, I really did believe that the average investor could do it himself. I was wrong. I've come to the sad conclusion…](https://sms4smile.com/quotes/william-j-bernstein/a-decade-ago-i-really-did-believe-that-the-average-investor-could-do/) [William J. Bernstein](https://sms4smile.com/quotes/author/william-j-bernstein/) > [What I'm trying to say is that for the average investor, what I would encourage them to do is to understand there's inflation and…](https://sms4smile.com/quotes/ray-dalio/what-i-m-trying-to-say-is-that-for-the-average-investor-what-i-would/) [Ray Dalio](https://sms4smile.com/quotes/author/ray-dalio/) > [The average investor's return is significantly lower than market indices due primarily to market timing.](https://sms4smile.com/quotes/daniel-kahneman/the-average-investor-s-return-is-significantly-lower-than-market/) [Daniel Kahneman](https://sms4smile.com/quotes/author/daniel-kahneman/) > [What I'm trying to say is that for the average investor, what I would encourage them to do is to understand that there's inflation…](https://sms4smile.com/quotes/ray-dalio/what-i-m-trying-to-say-is-that-for-the-average-investor-what-i-would-2/) [Ray Dalio](https://sms4smile.com/quotes/author/ray-dalio/) > [The normal expectancy of the average investor - for example, the pension funds of AT&T or IBM - is 6% for a long time.](https://sms4smile.com/quotes/charlie-munger/the-normal-expectancy-of-the-average-investor-for-example-the-pension/) [Charlie Munger](https://sms4smile.com/quotes/author/charlie-munger/) > [Not even identical twins can have the exact same experiences, and their brains are not wired the same way.](https://sms4smile.com/quotes/john-medina/not-even-identical-twins-can-have-the-exact-same-experiences-and/) [John Medina](https://sms4smile.com/quotes/author/john-medina/) > [I hate that our brains are wired that way. You don't remember the people that raved about us or just said something nice -…](https://sms4smile.com/quotes/khloe-kardashian/i-hate-that-our-brains-are-wired-that-way-you-don-t-remember-the/) [Khloe Kardashian](https://sms4smile.com/quotes/author/khloe-kardashian/) > [“In fact, most minds can choose effectively between only three to five options. If we’re faced with more than that, our ability to make…](https://sms4smile.com/quotes/bill-burnett/in-fact-most-minds-can-choose-effectively-between-only-three-to-five/) [Bill Burnett](https://sms4smile.com/quotes/author/bill-burnett/) > [“Passion is not a luxury or a diversion. It is the pathway into coherence. Our brains are wired for alignment. If we listen to…](https://sms4smile.com/quotes/donna-goddard/passion-is-not-a-luxury-or-a-diversion-it-is-the-pathway-into/) [Donna Goddard](https://sms4smile.com/quotes/author/donna-goddard/) > [“Humans will always think in terms of goals. Our brains are wired that way. But goals make sense only if you also have a…](https://sms4smile.com/quotes/scott-adams/humans-will-always-think-in-terms-of-goals-our-brains-are-wired-that/) [Scott Adams](https://sms4smile.com/quotes/author/scott-adams/) ## More by James O'Shaughnessy > [If you are an investor who's retired and hopes to live off the income that your portfolio is generating, then we would focus just…](https://sms4smile.com/quotes/james-o-shaughnessy/if-you-are-an-investor-who-s-retired-and-hopes-to-live-off-the-income/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [It seems that the one thing that doesn't change is people's reaction to short-term conditions and their axiomatic ability to perpetuate them far into…](https://sms4smile.com/quotes/james-o-shaughnessy/it-seems-that-the-one-thing-that-doesn-t-change-is-people-s-reaction/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [If you're an investor who wants a little bit more from the capital-appreciation side of things, but still likes this concept of getting 'paid…](https://sms4smile.com/quotes/james-o-shaughnessy/if-you-re-an-investor-who-wants-a-little-bit-more-from-the-capital/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [Fear, greed and hope have destroyed more portfolio value than any recession or depression we have ever been through.](https://sms4smile.com/quotes/james-o-shaughnessy/fear-greed-and-hope-have-destroyed-more-portfolio-value-than-any/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [History depends on who is telling the story.](https://sms4smile.com/quotes/james-o-shaughnessy/history-depends-on-who-is-telling-the-story/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [Stocks change. Industries change. But the underlying reasons certain stocks are good investments remain the same. Only the fullness of time reveals which are…](https://sms4smile.com/quotes/james-o-shaughnessy/stocks-change-industries-change-but-the-underlying-reasons-certain/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [Arbitrage human nature. It's not going to change any time soon.](https://sms4smile.com/quotes/james-o-shaughnessy/arbitrage-human-nature-it-s-not-going-to-change-any-time-soon/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [If you're indexing to the S&P 500, you're buying the most expensive names in the market.](https://sms4smile.com/quotes/james-o-shaughnessy/if-you-re-indexing-to-the-s-p-500-you-re-buying-the-most-expensive/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [We continue to advise that investors remain committed to a patient, long-term outlook and that the best way to do well in stocks is…](https://sms4smile.com/quotes/james-o-shaughnessy/we-continue-to-advise-that-investors-remain-committed-to-a-patient/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [The truth seems to love the small print.](https://sms4smile.com/quotes/james-o-shaughnessy/the-truth-seems-to-love-the-small-print/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [By relying on the statistical information rather than a gut feeling, you allow the data to lead you to be in the right place…](https://sms4smile.com/quotes/james-o-shaughnessy/by-relying-on-the-statistical-information-rather-than-a-gut-feeling/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [If you look back to the most spectacular blow ups in history, you can always tie them to a couple things: They were extraordinary…](https://sms4smile.com/quotes/james-o-shaughnessy/if-you-look-back-to-the-most-spectacular-blow-ups-in-history-you-can/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [Historically, we have always seen reversion to the mean. After stocks have had an unusually great 10 or 20 years, they typically turn in…](https://sms4smile.com/quotes/james-o-shaughnessy/historically-we-have-always-seen-reversion-to-the-mean-after-stocks/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [You'll get nowhere buying stocks just because they have a great story.](https://sms4smile.com/quotes/james-o-shaughnessy/you-ll-get-nowhere-buying-stocks-just-because-they-have-a-great-story/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) > [We believe that people moving their portfolios to an overweight in bonds will be disappointed over the long-term and will significantly underperform an asset…](https://sms4smile.com/quotes/james-o-shaughnessy/we-believe-that-people-moving-their-portfolios-to-an-overweight-in/) [James O'Shaughnessy](https://sms4smile.com/quotes/author/james-o-shaughnessy/) [Explore all 17 James O'Shaughnessy quotes ](https://sms4smile.com/quotes/author/james-o-shaughnessy/) ## More Average quotes > [I genuinely did not expect more than half our nation to choose to walk away from our long-term allies into the arms of our…](https://sms4smile.com/quotes/brian-reade/i-genuinely-did-not-expect-more-than-half-our-nation-to-choose-to/) Brian Reade > [There were times last year when people looked at the scoreboard and thought my batting average was the temperature.](https://sms4smile.com/quotes/buck-martinez/there-were-times-last-year-when-people-looked-at-the-scoreboard-and/) Buck Martinez > [The average condition of the people improving or deteriorating, depends upon whether population is advancing faster than improvement, or improvement than population.](https://sms4smile.com/quotes/john-stuart-mill/the-average-condition-of-the-people-improving-or-deteriorating/) [John Stuart Mill](https://sms4smile.com/quotes/author/john-stuart-mill/) > [In comparative terms, there's no poverty in America by a long shot. 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