Dumb decisions with a smart phone
March 15, 2012
Your portfolio? There's an app for that.
Financial companies have unleashed an onslaught of apps to help you track and manage your investments. The app revolution doesn't end with merely observing your portfolio. Now you can actually trade on your iPhone, iPad and Android devices.
With every Super Bowl, we see a new commercial of that talking baby encouraging us to plug into the global financial system. All from our crib.
You have to admit that it's incredible what can be done with an iPad on your lap. Look at Morningstar reports on mutual funds, analyze the technical indicators of your favorite high-flying stock, and know your net worth to the penny.
You feel great when you see your portfolio rocket up tens of thousands in a single day (why work?) and despair when markets are diving (I'll work forever).
Our access to financial data and ability to act on it instantaneously is unprecedented. Thirty years ago, many workers had a defined benefit pension plan. Work in one place for a career, retire at 65, and get a fixed income for the rest of your life.
Of course, somewhere there were professional pension managers looking after your benefit, but you didn't feel personally affected by the Dow dropping 50 points.
Classic pensions are expensive, so in the name of disseminating power to the people we had the shift to the 401(k), IRAs, and other self-directed investment options that you helped fund and manage. Now the investor has the control.
This shift coincided with some of the best financial markets in history. In the '80s and '90s, you were a financial genius and so was everyone else. While you still had to call your broker for quotes and to trade, you had the ability to bet your retirement on your financial insight.
In the dot-com era, you could monitor your IRA and stock options from your desktop. There were many days in the late '90s where productivity in some companies was practically nil as employees tracked the meteoric rise of their favorite IPO.
With smart phones today there's no need to wait until you get into the office. See how AAPL is doing while waiting in line for a latte. Should you sell LUV while pumping gas? You keep on hearing about Israel's plans to bomb Iran and the humanitarian nightmare in Syria. That can't be good for your portfolio. Maybe you should go to cash right now.
Like soon to be forgotten tchotchkes after a first grader's birthday party, when it comes to the ability to trade in your portfolio, more is not better. The human mind is made to process and react to information.
So the question becomes: What should our brain do with 50 flashing red and green boxes telling the stock market's tale today? Doing nothing seems naive, lazy and foolish.
Studies have shown that the more you trade, the worse your portfolio will perform. Trading costs, tax impacts and our innate tendency to buy high and sell low all conspire against our financial goals.
There are many reasons why the average equity investor has underperformed the market by more than 5 percent a year. Constant financial headlines and the ability to trade on the run won't help you beat this pathetic record. It may even help ensure your investing mediocrity.
What you need is more financial wisdom, not the ability to liquidate your portfolio with a swipe. This only comes from acquiring knowledge about investment strategies that have worked well over decades, the discipline to execute the plan and the patience to not track your portfolio's every dip.
Boulder Daily Camera