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How Sleeping Boosts Long-Term Investment Results

October 1, 2014

Medical researchers have discovered sleeping is one of the best things you can do for your overall health. Sociologists, meanwhile, warn about the psychic dangers of living tethered to the Internet. Now a MarketWatch column puts it all together by suggesting investors would be better off catching a few winks than using smart-phone apps to make quick trades.

The promise of always-on financial technology is that users won’t miss any golden opportunities — but it’s a false promise, says the columnist. For one thing, people who use mobile apps to invest are probably multitasking. That’s just a euphemism for distraction. As MarketWatch puts it, “There hasn’t been a study showing if the results of trades made through financial apps are better or worse than what happens when an investor is fully focused on the task at hand, rather than squeezing it in between and around other items.”

Maybe that study hasn’t been done yet, but history contains plenty of lessons. For instance, smart phones didn’t exist back in 1987. So on Oct. 19 — also known as Black Monday, when the Dow Jones industrial average fell by 22.6% in one session — frightened investors couldn’t use an app to sell every stock in their retirement accounts. Many complained that they had to stay fully invested because their brokers’ phone lines were busy all day.

That sounds quaint, but in fact, writes the columnist, the lack of instantaneous trading capabilities saved investors’ skin. They couldn’t “turn a short-term event into a long-term portfolio disaster,” as he puts it, because they didn’t have the technology to do so. By the end of 1987, the market was up for the year.

And advisors who pour capital into online tools to give clients 24/7 access to their portfolios might want to consider MarketWatch’s waitress story. Thanks to a mobile banking app, poor Janice lives in a state of constant stress, worrying about how quickly her paycheck will show up in her checking account. Do you really want your clients watching the intraday moves of every security they hold?

That’s where sleep comes in. One MarketWatch reader contributes a comment in the form of an anonymous quote: “Doing nothing is one of the most under-appreciated skills in investing … ZZZzzz.”

By Joan Warner
  • To read the MarketWatch article cited in this story, click here.