Reblog: The Biology of Good Investing


Investment pundits – ourselves included – write a lot about how checking your portfolio too frequently is hazardous to both your financial and mental health. The evidence is overwhelming that those who check their portfolios on a daily basis tend to underperform those who check their portfolios less frequently.

The reason is simple: On any given day, there’s almost a 50-50 chance the market will be up or down. Because people dislike losses more than they enjoy gains – a behavioral finding known as loss aversion – people who check their portfolios daily find the process painful. And just like your gut reaction to pain is to draw away from the source of that pain, your gut reaction to seeing an investment lose money is to make a change. To sell. To panic. To act.

Changing your portfolio, or market timing as our Chief Investment Officer, Dr. Burton Malkiel calls it, is an investor’s Most Serious Mistake.

So what’s the solution? Just check your portfolio less often, right?

Unfortunately, things really don’t get much better if you check less frequently.

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