The scene
The scene
Hana and Linda invested $50,000 each in the same diversified fund on the same day. Same amount, same fund, same starting price.
Hana checks the portfolio every morning. When she sees red, she moves some money to safer assets, telling herself she will get back in when things settle. When she sees green, she adds more. Over five years, she has made 38 transactions, each one based on what felt right that morning.
Linda checks once a year, in January. She rebalances if needed. She closes the tab.
Behavioural finance research has documented something specific about markets like the S&P 500 over long periods. The best-performing days tend to cluster very close to the worst-performing ones. JPMorgan's Guide to the Markets, an annual report tracking the S&P 500 over 20-year windows, has consistently shown a pattern that goes something like this. An investor who stayed fully invested across the 20 years earned roughly 9 to 10 percent annualised. An investor who missed only the 10 best trading days earned roughly half of that, around 5 to 6 percent. An investor who missed the 20 best days earned around 2 to 3 percent. An investor who missed the 30 best days earned close to zero.
The 10, 20 or 30 days that matter most are not predictable in advance. Many of them have historically occurred during periods of high volatility, often within days of the worst declines, when emotional reactions push investors to step out of the market. The investor who reacts to bad days by selling has a high statistical chance of also missing the rebound days that follow.
Past performance does not guarantee future performance. But the structural pattern (extremely concentrated returns in a small number of days) has held across multiple long-term windows and across most equity markets that have been studied.
What your brain just did
What your brain just did
Our minds confuse activity with progress, especially when we are watching closely. Hana is not impatient. Her brain simply needs to act when something is in front of her, the way all our brains do when watching an event we feel responsible for. This behaviour has a name: Action Bias.
What to do instead, in one move
What to do instead, in one move
The fix is not more discipline. It is less visibility. Whether less checking produces better results in your specific case depends on your circumstances. What is more consistent across research is that less checking produces less impulsive action, and impulsive action is what has been linked to missing the days that mattered most.
TL;DR
- Situation: You check your investment portfolio frequently. The act of checking leads to small actions you would not have taken otherwise.
- What your mind does: It feels uncomfortable being passive when a number is in front of you, so it pushes toward action even when no action would be better (this is called Action Bias, see below).
- Consequence: Long-term S&P 500 data shows that missing as few as 10 of the best trading days over 20 years can roughly cut returns in half. Reactive selling has historically tended to coincide with missing those days.
- What to do: Many investors who follow research-based approaches check long-term investments quarterly or annually rather than daily, and use dollar-cost averaging through automatic monthly contributions to remove timing decisions altogether.
What to do
- A common practice among long-term investors is to set a rule: check long-term investment accounts no more than quarterly. Once a year is even less reactive.
- Dollar-cost averaging through automatic monthly contributions is a structure used by people who want to remove the timing decision entirely. Buy on the schedule, regardless of what the market did that month.
- Many people who check daily delete the investment app from their phone and use a browser on a laptop instead. Adding friction is a choice that has worked for many.
- Some investors write down a plan before opening the app: "I will only act if condition X happens." If X has not happened, they close the tab without acting.
What not to do
- Do not check your portfolio out of habit. Habits feel productive without necessarily being productive.
- Do not react to short-term moves by selling. Historical data on missing the best days suggests that the cost of being out for even a brief period of high volatility can be significant.
- Do not move money in response to news. By the time news reaches your phone, it has typically been priced into the asset.
A portfolio you check every day will tend to ask for actions your portfolio did not need.
Want to understand why this happens?
Action Bias is the brain's tendency to favour doing something over doing nothing, even when doing nothing would have been the better choice.
It is not you. It is how every human brain handles being a spectator of something you feel responsible for.
What the research found
What the research found
Researchers studied football penalty kicks. They analysed 311 kicks in professional matches and found that goalkeepers jumped right 49 percent of the time and left 44 percent of the time. They stayed centre only 6 percent of the time. The data showed that staying centre would have saved more goals than jumping either way, given the actual distribution of kicks.
Why did goalkeepers keep jumping? Because doing something felt better than doing nothing, even when nothing was the better choice. A goal scored after a dive felt forgivable. A goal scored while standing still did not.
The same pattern has been documented in investing in two complementary ways. First, JPMorgan's Guide to the Markets and similar studies have shown that missing the best handful of trading days has cost long-term investors a significant portion of their returns, often more than half over 20-year windows. Second, Barber and Odean's 2000 study at the Journal of Finance, tracking 66,465 households over six years, found that the 20 percent of households trading most actively underperformed the buy-and-hold benchmark by roughly 6 percentage points a year. Both studies, from different angles, point to the same behavioural pattern: frequent action by individual investors has tended to produce worse results than patience.
Past patterns do not guarantee future patterns. But the link between checking, action, and lagging results is one of the most replicated findings in behavioural finance, supported by multiple decades of evidence across markets.
"Doing something can feel like progress, even when doing nothing would have been the better choice." — Bar-Eli, Azar, Ritov, Keidar-Levin and Schein (paraphrased from Action Bias among Elite Soccer Goalkeepers, 2007)
This is called Action Bias. Bar-Eli, Azar, Ritov, Keidar-Levin and Schein, Journal of Economic Psychology (2007).
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