Security Selection Factors: Novice Versus Experienced Investors

Abstract

In this study, we examine the differences in the factors perceived to be significant in the security selection process between novice and experienced investors. We apply the direct inquiry approach to two distinct groups: one group is composed of students enrolled in traditional face-to-face introductory investments classes, while the other group consists of students enrolled in the online sections of the same course. The online students tend to be generally older part-time students with greater investment experience. Based on their prior investment experience, we further break both face-to-face and online samples into two cleaner sub-samples of novice and experienced investors. We find that the novice face-to-face students tend to select variables with non-financial but firm-specific characteristics, while the novice online students select technical analysis type variables as most relevant. For the experienced students, the face-to- face classes are more similar to the online classes in their pre-course selection of variables. Both face-to- face and online experienced students identify technical analysis as well as fundamental analysis characteristics as important. The post-course survey shows that the face-to-face and online students overlap more in their highest-ranking variables compared to the pre-course survey, irrespective of their prior investment experience.

Keywords: Investment Factors, Security Selection, Individual Investors, Experienced Investors, Novice Investors

JEL Classification: G02, G11