In the last 10 years, the BSE Sensex gas grown by 17.79% on a compounded annual growth rate (CAGR). That means, if someone had invested Rs 1 lakh in the stock markets 10 years ago, the money would have grown to Rs 5.14 lakh now. In the same period, one third of the diversified equity mutual funds have also delivered a CAGR of more than 25%.

That would mean that Rs 1 lakh invested in one of those schemes 10 years ago would have now become Rs 9.31 lakh. But how many investors have really got these kinds of returns? In this context, it would be interesting to go through a study conducted by Dalbar Inc, a US-based financial services market research firm, to determine how the investment behaviour and decisions impacted the overall investment performance.

The company has done comparative study on the returns of S&P 500 Index and the returns of investors for a 20-year period ending December 31, 2010.

The study revealed two important facts:

i) The average return of the S&P 500 during the 20-year period was 9.14%.

ii)The average return earned by the equity investor during the same period was only 3.27%

Why is it so? What went wrong? There are some character traits or behavioural patterns that prevent investors from getting the market return.

Fear

Greed

Most of us have a desire to acquire as much wealth as possible in the shortest amount of time. This get-rich-quick mentality makes it hard to maintain gains and keep to a strict investment plan over the long term.

Investment portfolio based on ones personality

Basing investment portfolios on ones personal likes and dislikes is like investing in cars and fancy gadgets just because you love them. Investing in shares just because you think they are "smart" or "flashy" is ambiguous, for they could sink in the long run. It is better instead to invest in profitable ventures that pay in the long run. It is true: our investment fancies make us pay a heavy price.

Follow the flock policy

The follow-the-flock-for-fear-of-being-the-black-sheep policy makes you as an investor to follow others in the share markets. The pitfalls of group behaviour lead us to buying high and selling low. It also leads to unbalanced investment emotions of black or white (wrong or right) with no shades of objectivity and rationality. Buying high and selling low has made many investors suffer heavy losses in the long run.

Positive investment behaviour

It is good to be investment smart with humility and reasonable aspirations that makes achievement of financial goals a reality. I have never known of any high return investments that did not have high risks.

Patience over a lifetime and being able to assume stress helps in aiming for long-term positive returns and contributes to assuming less financial stress after retirement. Positive investment behaviour requires balanced moods, one of neither elation nor panic.

Neither selling in a panic due to share market positions or adverse world or country conditions is advisable, nor is a reaction of extreme financial prosperity. Both can destroy a lifetime of healthy investment. A long-term investor needs to realize that neither despairing nor getting elated with situations in civilisation proves worthy for long-term financial portfolios.