How readily could you answer that question? And if you knew the answer immediately, is that a good thing?
I was on a call the other day when I was asked how the market was doing that day and how it was doing so far that week. I didn’t know.
At first, I felt a tinge of embarrassment and quickly went to the website I use most often for market news. I thought, “I write for an investment newsletter. I should know the answer right away.” But just as quickly, I felt a sense of satisfaction that I didn’t know. I saw it as a sign that I’m doing what we encourage investors to do, or not do. That is to not watch the market too closely.
Wall Street Journal columnist Jason Zweig was the first person I’m aware of to write about a study by Harvard Psychologist Paul Andreassen that looked at how investors respond to financial news. While it might seem that better-informed investors would outperform their less-informed peers, Andreassen’s research pointed to the opposite conclusion. Stock investors who ignored the news earned twice as much as news junkies.
In the same 1998 article (his more recent article, "Consuming Financial News Without Being Consumed By It," is well worth reading), Zweig cited another study that compared the stock/bond allocations of two groups of investors. One group monitored their results monthly, while the other looked at their accounts just once a year. The monthly-monitoring investors tended to move some of their money from stocks to bonds when the market got volatile. The yearly-monitoring group made no changes throughout the year. You guessed it: the investors who checked on their investments just once a year did far better.
Zweig’s conclusion? “Stop checking your watch so often. Investing is a marathon, not a sprint.”
So, the next time someone asks you how the market is doing and you can honestly say, “I don’t know,” take that as a good sign. You’ve reached a new level of maturity as an investor.
How closely do you monitor the market? And how often do you check on your investments?