Don’t Turn Your Advantage into a Disadvantage

With modern technology and the never ending finance news cycle, one can get up to the second updates on investments. While this does provide a distinctive advantage over previous generations, where you would have to wait until the next day to check the newspaper, it can be a serious hindrance to wealth. Consider the following quotation from Benjamin Graham from his 1949 book, ‘The Intelligent Investor’:

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.

While some people can watch the markets with indifference, most of us suffer from loss-aversion. This is the behavioral economic principal which explains why the pleasure of gaining money, is less than the pain of losing money. When you watch the markets every day, you feel the sting of each loss. So despite your portfolio going up over the long term, you feel constantly stressed and anxious, always ready to sell to avoid a painful loss. The solution? Stop watching! Not only will it be easier on your emotions, you’ll likely make more money, as you won’t be making rash decisions in an attempt to avoid losses. Benjamin Graham knew this in 1949, and you should practice it too.

{ 0 comments… add one }

Leave a Comment

Next post:

Previous post: