Investor behavior seems to be full of contradictions.
We work hard and save. But when the time comes to grow our nest egg, a radically different environment awaits.
For many, the journey starts with enthusiasm. The stock picking horse race is exciting. Some are methodical and analytical; others place bets on their favorite brands.
Our bias is to invest in what we understand, and our actions as investors often reflect it. Loss aversion psychology amplifies the tendency to avoid risks that are hard to quantify or calculate.
Diversification is touted as “the” risk-aversion strategy, but the cost is rarely considered. It requires the investor to cross the chasm and evaluate industries, sectors, and companies with limited interest or prior knowledge. And then remain updated. That’s easier said than done.
Tracking a handful of stocks easily adds up to hours per week. Jumping from site to site, scrolling through news and social media feeds. The booming attention economy ensures there is no shortage of analysis or commentary; since their success is measured in your clicks and ad impressions.
Healthy gains generate excitement – and that becomes the fuel for further investment.
But what happens when our investments don’t perform?
In 2020 I ran a survey of 500 retail investors and was surprised that over half of them checked their portfolios less than monthly.
As returns dwindle, so does the dopamine rush. For many, checking their life savings becomes a source of disappointment or even dread. The biggest contradiction occurs when investors keep adding funds but lose the motivation to track.
“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
-Benjamin Graham in The Intelligent Investor
Many investors resort to occasionally checking price and profit/loss movements but largely stop following the news flow. It takes time and attention, and for long-term investors there are often more pressing uses of their time and attention. Unfortunately, this makes them late to act on risks and their portfolios pay the price.
Your ability to succeed is not just determined by funds and patience, but equally, by the attention you can afford to sustain.
Investing is comparable to gardening. We may plant for low maintenance, but it still benefits from a bit of attention to prevent losses.
Full disclosure. I built StockHawk, because I was frustrated with the process of keeping up with my portfolio. I’ve spent 20+ years developing trading applications, so I knew the domain and realized I could help people simplify their lives a little. Every day.
If you have questions drop me a line here.