Despite the astronomical operating profits and shareholder returns from Samsung Electronics and Hynix due to the recent global expansion of artificial intelligence (AI) investments, individual investors are finding it challenging to succeed in the stock market.
For a long time, individuals have relied heavily on real estate and savings for asset management, but recently, they have begun to increase their stock investment proportions. However, inappropriate investment methods and behaviors are threatening the sustainable growth of their assets.
As of last year, the turnover rate in South Korea's stock market was 201%, nearly three times that of the United States and 1.7 times that of Japan. Notably, since 2020, the influx of individual investors has shortened the average holding period for stocks to just 2.7 months for the KOSPI and 1.1 months for the KOSDAQ, with actual trading positions averaging only 10 days, indicating a trend toward short-term trading.
Generally, short-term investments yield poorer results than long-term investments. This is due to accumulated trading costs from overconfidence, the disposition effect for psychological satisfaction, momentum trading, information disadvantages, and the loss of compounding benefits.
The high propensity for short-term investing among South Korean investors can be attributed to a combination of factors, including a significant proportion of direct investments by individual investors, the convenience of mobile trading, a focus on thematic or issue-based stock investments, and high market volatility.
Analysis of individual investors' stock portfolios reveals a pronounced tendency toward concentrated investments in specific stocks or a few themes. This concentration is influenced by psychological factors, rational considerations, and individual asset structures.
Psychological factors include overconfidence bias, familiarity bias, herd mentality, and a preference for lottery-like stocks for short-term asset formation. Rational factors include overwhelming fundamentals and growth potential. In cases like semiconductor stocks in 2026, where there are compelling performance and growth narratives, it appears more rational to concentrate investments in understandable and certain stocks rather than diversifying across uncertain ones.
The tendency for concentrated investments among individuals aligns with short-term trading, making it difficult to benefit from long-term stock performance. The main issues arising from concentrated investments include excessive exposure to individual company risks, increased portfolio volatility, and exposure to unbearable losses during market overheating.
Recently, concentrated investments have combined with leveraged and margin trading, further amplifying investment risks, necessitating heightened caution.
To address the issues of short-term and concentrated investing among individual investors, institutional and environmental improvements are crucial. In advanced pension countries like the United States, the establishment and activation of pension systems allow individuals to manage their retirement assets through efficient diversification in indirect investment products, leading to long-term investment success.
Therefore, it is essential to improve systems to facilitate systematic and professional investments through indirect rather than direct investments, such as activating default option portfolios provided by financial institutions or introducing fund-type retirement pensions.
Incentives for long-term investing should also be actively considered. By providing incentives related to trading costs or taxation, individuals can be encouraged and guided toward long-term investments.
Additionally, financial institutions need to offer products and services that promote long-term and diversified investments. If individual investors can easily understand the concentration of their assets or the extent of short-term trading through visualizations of portfolio risks or turnover rates, it could serve as a crucial reference point for their investment decisions and trading activities.
Finally, continuous and systematic investor education is necessary. Particularly for younger individuals, while access to information is high, investment experience and capabilities may be lacking, increasing the likelihood of behavioral biases. Therefore, it is essential to strengthen practical, tailored education for new and younger investors to support them in maintaining long-term investments through proper investment methods.
The preference for short-term and concentrated investing among individual investors should not be dismissed as merely a personal judgment and responsibility; it is a societal issue. The government and financial institutions must take a more responsible approach to improve individual asset management and investment effectiveness.
* This article has been translated by AI.
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