A stock market tip: less is more
Investors don’t like losing – no one of us do, thanks to loss aversion. In a recent article for behaviouraleconomics.com, Robert Metcalfe, PhD, writes about a real-world experiment researchers have identified what they call Myopic Loss Aversion (MLA) to describe how professional investors with second-by-second information on stock price made less profit than those with less frequent information.
In a natural field experiment – real investors with real stocks and real stakes – two groups of investors were followed to see how much they made over 14 days. One group had instant information on their price fluctuations, the other had access every four hours. The more often traders in the first group tried to avoid small losses, the more often they made them.
The findings suggest the less we know about fluctuations in stocks, the better off we’ll be in the long run. As studies have shown, it’s the investors who have forgotten they have particular stocks that have enjoyed some of the highest returns.