If you pay close attention to investment news, it’ll either make you laugh or it’ll drive you bonkers. Within the same hour, and on the same market news website, you will often see completely contradictory articles. One says the market is headed higher; the next says the market is about to tank.
What’s a smart investor to do? Be very careful about your information diet.
More Information, Less Success
In the late 1980s, former Harvard psychologist Paul Andreassen conducted an experiment to see how the quantity of market information impacted investor behavior.
He divided a group of mock investors into two segments — investors in companies with stable stock prices, and investors in companies with volatile stock prices. Then he further divided those investors. Half of each group received constant news updates about the companies they invested in, and half received no news.
Those who received no news generated better portfolio returns than those who received frequent updates. The implication? The more closely you monitor news about your investments, the more likely you are to make changes to your portfolio — usually to your detriment.
In another study, renowned human behavior researchers Daniel Kahneman, Amos Tversky, Richard Thaler, and Alan Schwartz compared the stock/bond allocations of investors who checked on their investments at least once a month against those who did so just once a year. Those who took in…