OUR PERSPECTIVES


Beware High Frequency Monitoring

Investing is one of the few areas of life where you can do better by working and stressing less. Research has shown that the more frequently you check your investments, the worse it will seem that they are performing. This is known as “myopic loss aversion”. In effect, over vigilance gives investors more opportunities to react aversely to short term movements in prices.

Put another way, the more frequently you check your investments the less likely you are to hold the line as a long term investor, and the more likely you are to drift into the realms of short term trading and speculation.

Whilst it may seem like good stewardship the reality is that logging in and checking your portfolio regularly is likely to:

 

  • Encourage you to tinker with things (make impulsive, short term changes).
  • Make you worry more about your portfolio.
  • Ultimately hinder the performance of your portfolio.

 

It’s no coincidence that the majority of investors perceive property investments as much less risky than shares. Furthermore, the data suggests investors do far better out of property than they do with shares. But in truth, property and shares display fairly similair risk and return attributes over time (albeit shares tend to deliver superior long term performance).

The difference appears to be that with property, investors are protected from themselves by virtue of the fact that they can’t check their valuations daily and the higher entry and exit costs prevent them from making impulsive, short term decisions.

From our own experience at Minchin Moore we have found that often our most “interested” clients are often the ones who are the most prone to impulsive hyperactivity. This is bad news for their returns, so we endeavour to counteract this by making sure all our clients have a properly laid out investment strategy and philosophy for investing.

A robust investment strategy should act as a rudder, keeping us steady and on course through choppy waters. It specifically outlines what we should do when markets move up and when markets move down. And without question, we have found this to be true in practise.