Why you don't need to monitor your portfolio daily

Most of us have learned and believe that the key to success in the stock market is to perform a detailed company analysis. But is it enough? Is it the only winning factor? Often, one of the most underrated yet important factors behind long-term wealth creation is controlling one's emotions. Although investors know that market timing leads to wealth maximisation, they seldom apply it to themselves. More often than not, people are emotionally so invested that a field called 'behavioural finance' exists, which solely studies investors' market habits and biases. Behavioural science tells us that one of the most common biases that plagues almost every investor is loss aversion. It explains why people hold on to their losses and immediately square off their gains. In simple terms, people regret their losses more than they enjoy gains of similar proportions. Myopic loss aversion: A familiar foe Another version of this investing bias is myopic loss aversion, derived from a riddle by the Nobel laureate Paul Samuelson. He asked a colleague if he would be willing to accept the following bet: a 50 per cent chance of winning $200 or a 50 per cent chance of losing $100. Though initially, the colleague turned down the offer, he reconsidered it on two conditions: one, he could play the bet 100 times and two, he did not have to observe each outcome. Nobel laureates Richard Thaler and Shlomo Benartzi gave their own interpretation regarding this investing bias. Based on this scenario, they concluded that the longer an investor holds an asset, the more attractive it becomes, provided it is not frequently evaluated. Daily price fluctuations make investors loss averse, pushing them to sell a potential multibagger even if there are minor downturns. To sum it up, the two factors contributing to investor turmoil are loss aversion and frequ

This article was originally published on October 27, 2023.