Myopic Loss Aversion

A friend refreshes his holdings app maybe ten times a day.

I check mine about twice a year. We own the same fund. He is miserable and I am fine, and for a while I could not work out why the same portfolio was doing that to him and not to me.

So I pulled the numbers.

Here is the part nobody tells you about an index that climbs over the long run. It still closes red almost half the trading days. Look at it every day and that is what you feel, a coin flip that is usually against you. Stretch the lens to a month and the red drops to about 2 in 5. Stretch it to a full year and it is about 1 in 4. The portfolio did not change. The only thing that changed was how often you opened it.

Now stack one more fact on top. A loss stings about 2.25 times as hard as the same size gain feels good. That is not a saying, it has been measured. So a screen you check all day does not feel neutral even when the market is up more often than not. You feel every red print at double weight and the green ones barely register.

Shlomo Benartzi and Richard Thaler gave it a name. Myopic loss aversion. In one clean test, people shown one year of returns put 40 percent of their money in stocks. People shown thirty years put 90. Same asset. The only variable was how often they looked.

You cannot stop the red days. About half of them are coming no matter what you own. The part you control is how often you decide to feel it. Pick a rule, put it on a schedule, and let it check the weights so you do not have to.

The looking is the tax. Most of us pay it ten times a day