Are stock market apps making you a bad investor?

stock-624712_960_720.jpgIt wasn't so long ago when people would check stock prices in the newspaper with their morning coffee. You could check your portfolio once a month when your account statement would arrive in the mail.

Fast forward to today and thanks to the internet and phone apps, you can check your investments up to the second. However, is having so much data at your fingertips making you a bad investor?

Per a recent Wall Street Journal article, the answer for many people is yes -- for the simple reason that they tend to make investment decisions based on short-term losses in their portfolio, ignoring their long-term investment plan. Behavioral economists call that tendency "myopic loss aversion" and this is an increasing problem in todays always connected world.

Slow and steady wins the race

Watching your investment grow is like watching a tree grow. You plant a seed and it takes years to grow into something substantial. You can't watch it every minute and worry about one day of inclement weather. Recently I witnessed this first hand from a new client. They called our office in a panic because they were worried about growing losses. When we looked at their account, it was down 0.2%. Perhaps it was due to the fact that the Presidential election had them extremely worried, but they panicked and wanted all their stocks sold. Hindsight is 20/20. By sticking to their long-term investment strategy, their account is much higher today.

Everyone knows that to be successful you have to buy low and sell high. However myopic loss aversion causes us to do the opposite.

What does this have to do with your smartphone apps? The main trigger of myopic loss aversion is frequent feedback. In this instance, too much information is actually making people worse investors.

To understand why, consider what you’re likely to find if you monitor the S&P 500 index at different intervals. If you check every single day, there’s a roughly 47% chance that the market will have gone down, based on its past movements. But what happens if you check once a month? The numbers will start to look a little better, as the market will only have gone down 41% of the time. Years are better still, as the S&P generates a positive return seven years out of every 10. And if you check once a decade, then you’re only going to get bad news about 15% of the time.

Furthermore as researchers wrote in a report published in the Quarterly Journal of Economics in 1997, "Proving such investors with frequent feedback about their outcomes is likely to encourage their worst tendencies... More is not always better. The subjects with the most data did the worst in terms of money earned."

Have a plan and stick to it

Because myopic loss aversion can affect your bottom line for the worse, you should take sensible steps to reduce its impact. While you don't need to delete all your stock related apps on your phone, you shouldn't check them on a daily basis and definitely don't only check on down days when you see a negative headline.

Remember it is important to have a long-term investment strategy and financial goals. Keep that in mind when reviewing your investments. Then make the decision whether you are on the path to success or need to make changes to your overall plan.

Do you check your portfolio on a daily basis? Do you find that it helps or hurts your financial health?

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About the Author: Chris Wang

Chris Wang


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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