Information Overload
We live in an era of unparalleled technology and access to information, and with recent trends with Artificial Intelligence (AI), our use and reliance on technology is growing at an exponential rate. And, in many areas of life, this new found access to technology and information has been a tremendous boon. However, when it comes to investing, for the average do-it-yourself investors, this constant barrage of information and technological access has actually been highly detrimental to their financial well-being (not to mention their emotional well-being). This is a case, in my mind, where more has become less.
One of the worst things that ever happened to the average investor was the advent of the constant (and mostly negative) news cycle, combined with instant online stock quotes, portfolio updates and trading capabilities. What we have to understand here, is that when it comes to investing, people are often their own worst enemies. The non-stop access we now have to “news” and to our investment portfolios is compelling people to use quick knee-jerk reactions to manage an aspect of their lives, investing, that should always, and only, be done slowly, methodically, and without emotion, over years and years, and really, decades and decades.
It wasn’t always this way. It wasn’t always the case that everyone always knew exactly what the markets did today, or even last week or last month, or, what the “experts” said was coming next. But, these days, everyone is acting like a day-trader. How often do you overhear a conversation in the coffee shop about the markets or about an individual stock? All the time! And, as it turns out, too much information is actually a bad thing for investors, because people don’t process it or act on it correctly.
Now, people are checking their accounts multiple times a day. They are reading articles and blogs and listening to podcasts throughout the day that try to explain what is happening with the market and what some supposed guru says is going to happen next. People are reacting to this information on a day-to-day, or even minute-by-minute basis, and using their irrational human brains to make investment decisions, that, in reality, should only be done from a rational standpoint. People are making bad investment decisions based on short-term feelings and emotions, instead of on long-term plans and time-proven investment techniques.
The way many individuals are investing these days, is like planting a garden and then checking the growth of your plants three times a day. ‘Oh my god, it has been five hours and my rose-bush hasn’t grown at all! I better water it!’ (Oops, I guess I over-watered it, and now it’s dead.) You would never do this in the garden. Don’t do it in your portfolio. Portfolio growth takes time and patience, just like a garden.
A good example of how technology and human behavior are hindering our investment returns can be seen when we compare residential real-estate returns to stock-market returns. Almost everyone I talk with thinks that the housing market has done significantly better than the stock market. In fact, it is very much the opposite. However, even though the housing market has not done nearly as well as the stock market over the long-run, for many people, their house has been their best-performing asset.
Now, how is that possible? The stock market has outperformed the residential real-estate market, yet most people’s best returning asset has been their house? What gives?!?!? The answer here is really simple: time in the markets, not timing the markets. In other words, turn off the news, put down the smart-phone, stop watching your portfolio from day-to-day, and let the power of long-term investing do its thing.
Most people stay invested in their houses for 10, 20 or 30+ years, without making any knee-jerk emotion- based moves along the way. If people were as patient and dedicated with their investment portfolios as they are with home ownership, they would have almost always done significantly better in the stock market; but, sadly, very few people actually do.
The great thing about your house as an investment, is that you don’t get a statement showing its value every month. You don’t get an email blast every time your house goes up or down in value. And, fortunately, you can’t sell part of your house any time you want to for $9.99 a trade. The lack of information about house prices, and the lack of liquidity (i.e. the ability to sell quickly without a major price decrease), forces investors to do the right thing, which is, STAY INVESTED. The truth is, the value of your house is going up and down every day; you just don’t see it. And, for most people, that is a great benefit to their long-term success. As always, remember, it is time in the market not timing the market that matters in the long-run. The problem for many people when it comes to stock-market investing, is that the market is so liquid, and so closely followed by so many people, and so often discussed, it is almost impossible to turn off the noise and simply stay invested. Information overload is killing the average investor’s long-term investment returns. Our hope is that now that you know this basic truth, you will be able to beat the odds.
Disclosures
The commentary on this website reflects the personal opinions, viewpoints and analyses of the Topel & DiStasi Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Topel & DiStasi Wealth Management, LLC or performance returns of any Topel & DiStasi Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Topel & DiStasi Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.