Tag Archives: discipline

Overanalyzing Investments

It seems like every year that goes by, there new sites or apps that capture the attention of different people.  These run the gamut of genres, from educational, to informational, and mostly (it seems) entertainment.

A number of these can help people with different aspects of their lives.  For example there are sites out there that help people track expenses and nutrition.  These can be very useful. However, there are also sites or apps out there that end up causing people to waste time- such as many games.  Yes, I should know…..I really enjoyed Angry Birds when it came out:)

There also apps that can do both: help you as well as waste your time.  Some can even lead you to overreact and make decisions that aren’t always necessary to make.

Along those lines, there was an interesting article on MarketWatch recently that talked about the notion of deleting investing apps.  While I don’t know that I would go that far as a rule of thumb, the article does bring some good points.  What resonates with me is the idea that people getting more information might be compelled to act on such additional information.  Which, in reality, might not always be such a good thing!

Here’s the deal, as I see it: many people like to actively trade in the market, or at the very least are predisposed to feel that they can beat the market.  There is some sort of bias I suspect many folks have about their own intelligence and skills.  The thing is, many times index funds outperform actively managed funds.  So, if many pros can’t beat the market, why does the totally average investor believe he or she has special talents to do so?

Armed with additional information at one’s fingertips, some people might make a higher frequency and volume of trades.  This could result in a financial outcome that isn’t necessarily better than would happen otherwise.  In some cases, Januarybe worse.

Or, this might get a person to simply spend more time checking investments out of habit and obsession.   This can waste time.  Sort of like a blogger checking traffic stats all the time :) The time adds up, and for little incremental reward.

Bottom line is that while many apps are cool and can truly be helpful, we should be watchful over how much time and importance we give to using them.  Sometimes it’s better to keep things simple!

Readers, what do you think of the notion that more information can sometimes result in excess analysis and reactionary behavior? Also, the idea that sometimes with more information, we can risk wasting our time for very little incremental return?