Have you seen the movie The Social Dilemma? If you have not, you should. It’s a “docudrama” discussing the rise of the various social media platforms and their ambitions to “capture” more and more of your time and focus. They have intentionally designed the platforms to establish an addictive relationship with the user - demanding more and more attention and driving more and more activity in a way that benefits the platform not the user.
I cannot help but think about this phenomenon relative to the current investment environment. Smart phones have made access to market data instantaneous. Trading platforms are now open 24 hours a day and trades can be initiated from anywhere. New broker business models have effectively eliminated direct visible fees associated trading. Social media sites focusing on stock picking. Over the past few weeks we have been bombarded with the news reports regarding the frenzy associated with the names Reddit, Robinhood, GameStop, etc.
While increased access to market information, increased ease of trading and reduced cost of trading are all generally good developments for investors, these elements can create an environment which may not be beneficial in the longer term for investors – especially new emerging investors.
When coupled with extra time available as a result of the current COVID Work From Home environment, this increased access to data, the ease and no-cost basis for trading, and the YOLO (You Only Live Once) encouragement that is available on social media sites have resulted in a very active investor profile - constantly checking prices and frequently adjusting portfolio positions – moving in and out of individual stocks as well as the market as a whole. These enhancements have made it so easy and cheap to trade. It is very difficult to be a patient and consistent long term investor. It is too easy to check your portfolio numerous times an hour and simply press an icon on your phone to initiate a trade. Emotions begin to rule the day – and the trade.
History has shown that the greatest formula for building wealth is through managing expenses, adding incremental amounts to your investments on a regular basis and remaining consistently in the market. There is little evidence of an individual investor’s ability to consistently time the market – selecting the exact right time to both increase or decrease exposures. Active investors routinely miss the big “up” days that follow a “down” market.
At Telemus, the foundation of our organization is based on a holistic approach to financial life management. We have the experience and perspective to help you see through the volatility and emotions of the market and maintain your focus and strategy on your longer term life and financial goals. We assist you in developing, implementing and supporting appropriate ongoing wealth strategies for you and your family. Let’s start the process!