It may sound like a mother’s mantra to her tech-obsessed teenager, but turning off your computer and putting away your smartphone might be the ticket to triumph in the market. This according to Mark Hulbert, founder of The Hulbert Financial Digest, in a recent MarketWatch column.
Hulbert cites study results published this month by the National Bureau of Economic Research that found performance by those traders who pay the closest attention to the stock market’s “short-term gyrations” to be significantly lower than those who pay infrequent attention. The study’s authors explain that the traders most focused on short-term market movements tend to be “more conservative, allocating less money to risky assets and, therefore, earning a lower profit over time.”
According to Hulbert, the study is one of the first to confirm this tendency which, in the realm of behavorial economics, is referred to as myopic loss aversion and is based on the theory that:
- We hate losses more than we love gains;
- Given the chance, we look to see how our investments are doing.
How do we counteract this tendency? Turn off the technology. Hulbert says, “Since we can’t really change our psyches to make us hate losses any less, the only realistic antidote is to pay less frequent attention to the markets and how our portfolios are doing.”