John Bogle, Founder, Vanguard Group

Quick, without looking, what happened (financially) on August 6, 2011?

No one today seems to remember. But judging by the news coverage at that time, you might have thought that the end of the financial world was at hand (answer –Standard and Poors lowered the credit rating of the United States from AAA to AA).

I can tell you from vivid recollection, the financial news media at that time milked that credit downgrade for all it was worth, and then some. Hootin’, hollerin’ and gnashing of teeth! But to what end (other than to attract eyeballs and sell commercial air time)?

That transiently-important non-event (and many others like it) bring us to one of the best nuggets of investment advice I’ve ever come across. It deals with the absolute unimportance of most “news” events and the attendant frequency that you check on the performance of your investment account. Spoiler alert – less is more!

Here’s how John Bogle frames the issue.

“As I have said before, the daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing,”

Bogle added: “One of my favorite rules is ‘Don’t peek.’ Don’t let all the noise drown out your common sense and your wisdom. Just try not to pay that much attention, because it will have no effect whatsoever, categorically, on your lifetime investment returns.” .

Well now! Since virtually all investment custodians provide for the ability to view your investment portfolio in a real-time environment, it might be imagined that would be beneficial, as it offers the illusion of control. I’m here to tell you, NOT! In no uncertain terms, it is not beneficial to keep up with your portfolio’s movements and performance on a short-term basis. In fact, it is the very opposite. It is demonstrably detrimental to long-term investment success and potentially very costly, as it often leads to bad investment behavior.

Custodians provide real time information, because they well-understand human nature and behavior. Immediate access inexorably leads to recurring moments of fear and anxiety, which leads to the impulse to “do something!”. This of course often leads to disruptive overtrading (commissions!) which can threaten the very viability of a thoughtful and effective long-term investment plan.

Loss aversion

Psychologists Amos Tversky and Nobel laureate Danial Kahneman first described the phenomena known as “loss aversion” back in the late ‘70s. Since then, advertisers, marketers, end-of-the-world newsletter writers and yes, even custodial brokerage firms, have figured out how to use loss aversion to their great advantage. (see above – Commissions!)

And just what exactly is loss aversion? Simply put, we humans feel the pain of a loss far more intently as the joy of a comparable gain. Finding $100 on the sidewalk feels pretty good. Finding that you’ve lost $100 out of your wallet feels awful!

So, what does that have to do with checking your investment portfolio too often? Well, how often do you want to feel bad? You see, on a daily basis the stock market rises roughly half of the time. So, for any day that you look at your portfolio, you have a 50% chance of being happy and a 50% chance of not being happy

It does get a bit better if you stretch out the “portfolio check-in periods”. On a weekly basis, the stock market has historically risen 56% of the time, and on a quarterly basis, 63% of the time. On an annual basis, even better – 80% of the time.

I think you probably see the point here. Less really is more. So, pick your poison. How often do you want to feel bad? 50% (daily check-in), 44% (weekly check-in), 37% (quarterly check-in) or just 20% (annual check-in) of the time?

So, resist the temptation to look too often, which leads to the temptation to “do something”. If you understand and believe in your investment plan, let it work. You aren’t going to change it every time there is a bump in the road, are you? That answer should be “No!” because, believe me, over the course of your investment lifetime, there will be many bumps. It comes with the territory. Remember that the best group of investors at Fidelity were in fact dead!

By Bo Billeaud