Here’s an interesting statistic on investor biases via Brendan Conway at Barrons:
“Since everybody on Twitter seems to love this stat, here you go: ETF investors in one study were more than twice as likely to log onto their brokerage accounts every single day.
What are you doing if you check your account every day? You’re like a dieter who hangs out at the Krispy Kreme. At minimum you’re going in there to fiddle, or to think about it. At worst, you’re a day trader.
The study, undertaken by the Vanguard Group and published two years ago, showed that 36% of ETF users were in there every single day. For mutual-fund-only investors, it was 16%.”
What’s going on here? Well, it would seem that the liquidity feature of ETFs makes us more likely to check in on their current value. Unlike mutual funds, whose prices don’t update by the minute, there’s some psychological attraction to being able t0 see our real-time performance in the ETF world.
The liquidity of these assets is wonderful. And it’s great that the technology has made our portfolios accessible by the swipe of a finger. But there’s also this added downside risk where the liquidity and accessibility of the assets makes the owner of the asset more likely to obsess over the daily performance which could lead to irrational decisions at points.
The advancements in technology are a benefit to those who understand. That is, you have to be aware of the inherent biases we all have and how they don’t go away in a world with better technology. But you also have to be aware of how liquidity and technology might make us even more susceptible to those biases which could lead you to do some very silly things.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.