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The Hidden Cost of Watching the Market Too Closely
What if I told you that simply watching the stock market too closely could make you poorer? It sounds counterintuitive, but the more frequently you check your portfolio, the more likely you are to make costly mistakes. And research backs this up.
The Digital Age has made access to stock market data and real-time portfolio values easier than ever. But instead of helping investors, this constant stream of information often leads to short-term thinking, panic-driven decisions, and ultimately, lower returns.
The problem stems from myopic loss aversion. You may be familiar with loss aversion, which is the behavioral bias that makes us feel the pain of losses about twice as intensely as the pleasure of equivalent gains.
Myopic loss aversion is the idea that the more frequently we evaluate our portfolios, the more likely we are to see losses, triggering emotional reactions (due to loss aversion) that can derail a long-term investment strategy.
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The More You Watch, the More You Lose
The impact of myopic loss aversion isn’t just theoretical—it’s been proven by research. In fact, this study shows that investors who receive the most frequent feedback on their portfolio performance tend to take on less risk than optimal, leading to lower long-term returns.
Why? Because seeing short-term losses—even small, temporary ones—causes anxiety. That anxiety drives poor decisions, like selling investments after a decline or hesitating to reinvest after a downturn. The result? Many investors miss out on the market’s long-term growth.
Consider this: If you look at the S&P 500 every single day, you have a 47% chance of seeing a loss. That means nearly half of the time, checking your portfolio will make you feel like you’re losing money—even though markets tend to rise over the long run.
But (historically) if you check less often, your odds of seeing a loss drop significantly:
- Monthly: 38% chance of a loss
- Annually: 21% chance of a loss
- Every 5 years: 12% chance of a loss
- Every 20 years: 0% chance of a loss
Long-term investors, whether they’re in their 30s, 50s, or already retired, have multi-decade time horizons.
Yet, by evaluating portfolios in daily or even quarterly intervals invites unnecessary stress and poor decision-making because it causes investors to lose sight of the big picture as their mental time horizon shortens to match the frequency of feedback rather than that of their planning time horizon.
How to Stop Watching the Market and Invest Smarter
If frequent portfolio monitoring leads to worse outcomes, what can you do to break the habit?
Here are a few strategies:
Limit how often you check your portfolio. Decide in advance how often you’ll evaluate your investments. For what it’s worth, I only look at my portfolio values once a year when I’m updating my net worth statement.
When you look at your portfolio at predetermined times, it reduces the likelihood of getting caught on the emotional rollercoaster of short-term market swings.
Delete your stock market apps and turn off financial news notifications. While it’s important to only regularly check your portfolio, regularly checking in on the overall market is equally harmful.
Your phone is not designed to make you a disciplined investor. In fact, it’s designed to do exactly the opposite, drawing your attention to unnecessary noise.
Focus on your financial plan, not daily price movements. Your portfolio is built for decades, not days. Remind yourself of your investment policy statement (IPS) and the reasons behind your allocation decisions.
Reframe how you evaluate success. Instead of judging your portfolio based on recent returns, measure success by how well you stick to your strategy and whether you’re making decisions based on evidence rather than emotions.
Final Thoughts: Step Away from the Market and Stick to the Plan
Investing success isn’t about reacting to daily market moves—it’s about having a plan and sticking to it. The less often you check your portfolio, the better your returns are likely to be.
So, do yourself a favor: step away from the stock ticker, tune out the short-term noise, and focus on the big picture. Your future self will thank you.
Resources:
- Download my Net Worth Worksheet
- Read: The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test
- Read: Myopic Loss Aversion and the Equity Premium Puzzle
The Long Term Investor audio is edited by the team at The Podcast Consultant
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