An addiction is a “state characterized by compulsive engagement in rewarding stimuli, despite adverse consequences.”
Some people are addicted to whisky. Others are addicted to crack cocaine. I was addicted to checking my investment portfolio.
It was just too easy. I had the Bloomberg app on my cell phone, which provided me with real time updates of both my daily and cumulative losses or gains for my investment portfolio. I probably checked this app four times a day. It literally took a few seconds to get an update, and I could do so from anywhere.
From a financial perspective, the harm is not in checking your portfolio, but in buying and selling. When you buy or sell, you incur taxes and trading fees. Over time, these add up and can really diminish your returns. However, there is emotional harm and stress from these real time updates. The markets are volatile and seeing that you have lost money sucks!
I told myself that I would check the Bloomberg app less frequently. But the app was staring at me on my first page every time I unlocked my phone. Needless to say, trying to “cut down” didn’t work, so I deleted the app one day.
So the question is why? Why was I checking my portfolio so often?
My genuine interest of investing and the markets is a part of it. Even before I started to invest my own money, I would still follow how the stock markets were doing. But there is a difference between following market trends and being obsessed with market trends.
The more prominent reason was a fear of losing.
We hate losing money
“There are certain things in life that cannot be adequately explained to a virgin either by words or pictures. Nor can any description I might offer here even approximately explain what it feels like to lose a real chunk of money that you used to own.” ~ Fred Schwed Jr.
The updates were nice when you are making money. But when the stock market is going down, it is extremely painful to see losses. I like winning, but I hate losing. This is known as loss aversion.
Let’s use an example. I am going to flip a coin. If you guess wrong, you lose $10. How much money would you have to win if you guess correctly to participate? You would think the answer would be anything greater than $10. However, most people say that they would have to win at least $20 to participate. Why? People feel loses more deeply that gains of the same value. In other words, it hurts more to lose $100 than it is to gain $100.
And there has been a lot of losing recently. US equities had their worst ever 2 week start to a year in 2016. This was the second time in the last six months that the markets have had a 10% correction. I read an article on Business Insider saying that this has happened 3 times before – in 1929 before the Great Depression, in 2000 before the dot com bubble and in 2008 before the financial crisis.
This is exactly what the news stories want to do. They strike fear.
If it bleeds, it leads
Humans have a tendency to focus on the negative, obsessing about all the things that are wrong with the world. But if we look at some facts, there has never been a greater time to be alive. We live in the most abundant time in human history. The world has never been more peaceful. Education and literacy levels are rising. Life expectancy is rising. Poverty is decreasing. Crime is down. The list could go on and on.
And in their book, Abundance, Peter Diamandis and Steven Kotler argue things will only improve in the future with the rapid growth of computing technology, the democratizing effect of accessing information through the Internet, and the rise of billionaires, like Bill Gates, with a genuinely want to make the world a better place.
Dave Chilton in The Wealthy Barber Returns stated, “I’m always optimistic about the long term for a very simple reason: An incredible number of brilliant people all over the world are working on innovative ideas to better our lives.”
But it doesn’t feel like the best time ever to be alive, does it? Our minds are flooded with images and stories of recent terrorist attacks and economic crises from the media. Seeing a horrific video posted online of a terrorist attack has a more profound impact on my thinking than hearing that “the world has never been more peaceful.” It is hard to see these stories and not get scared about the future.
The difficulty of thinking long term right now
We should be ignoring this news and the short term fluctuations in the market if we are investing for the long term. I know. I have read about this in hundreds of blog posts and books. But there is a big difference between the theory and actually experiencing this stuff for the first time. The thought that everything will be ok in the long run does not make losing money, even temporarily, any less painful.
A boxer can practice his technique and work out extensively, but that is not going to make getting punched in the face any nicer when they actually step into the ring. We can read books and become educated on the topic of investing, but the theory does not prepare us for what it actually feels like when we lose our own money.
Tying it all together
I enjoy staying current with world events. But staying current results in pessimistic thoughts about the short term because of the media’s focus on negative events. I am optimistic about the future, but the constant ingestion of negativity always seems to be lingering in the back of my mind. This pessimism led to an addiction. And I know that checking the value of your portfolio might not seem as serious as a drug or alcohol addiction. But the volatility of the stock market can lead us to make emotional decisions that have adverse consequences to our finances and well being. And that can be destructive.