Practically every money manager or advisor will tout the benefits of experience, particularly their own experience (But no, being a good chess player doesn’t make you a good investor — that’s a topic for another day.) But experience only matters if it has been used as a learning opportunity. It is the knowledge derived from experience that matters, not just time spent watching CNBC or trading screens.

The first step in learning is to know what you already know. But how good are we at this step? In their paper, “Why inexperienced investors do not learn: They do not know their past portfolio performance“, Markus Glaser and Martin Weber study this issue. They compared the results of a survey of 215 investors to the actual returns of their portfolios. This isn’t about opinions or misunderstandings; it literally tested whether people knew their own numbers. To misquote Charlotte Bronte, “Dear Reader, it did not go well.”

• The correlation between recalled returns (over the previous four years) and the actual returns was slightly negative (-0.07).
• Only 30% of people thought they were about average.
• Fewer than 5% of the investors thought they had lost money, whereas the true percentage was slightly more than 25%.
• Those who thought they had above average returns did not.
• The difference between estimated returns and true returns was 11.5% a year.

So, in aggregate people over-estimated their ability and had a poor idea of what was actually happening.

This shouldn’t be too much of a surprise. In practically every field, people rate themselves as above average (Obviously, it is possible for the majority of people to be above average in a skewed distribution — but try not to be the person who points this out; no one likes that person.)

But in this case the statistics are objective and the phenomenon costs money. If you don’t know the results, you can’t learn from them. And there is just no need for this to happen. Don’t guess how good you are. Look at your statements.

“You are what your record says you are.”

-Bill Parcells