The Methods Individual U.S. Investors Use to Make Investment Decisions

This study addressed the lack of scholarly research on actual sales and purchases of publicly traded securities into what methods individual investors use to make investment decisions and how investors' behavioral finance biases influence those decisions. Such research will be important to the 54.5 million U.S. families who own publicly traded securities and to the professionals who advise them. No single theoretical foundation on individual investor' decisions about buying or selling securities was used in this study; instead many different classical theories from the literature were used, including market timing, buy-and-hold, qualitative analysis, and 16 other investing theories. The key research questions asked how individual investors decided which publicly traded securities to buy or sell. Data were collected by Internet surveys of a census representative national sample that produced 400 usable responses and samples of university students and former students that produced 116 additional usable responses. Commonplace investing methods were identified by respondents answers to the survey questions. A qualitative research method was used to determine what investing theory each respondent used based on his or her response to the survey questions. The data indicated 69.5% of the respondents used unsophisticated or commonplace methods instead of classical investment methods to make their decisions. Behavioral finance biases negatively influenced 56.7% of respondents' investment decisions. This study will bring about positive social change by informing the efforts of personal investors in their decisions about their financial futures, as well as the work of investment advisors in their advice to their clients.