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Success is not about being right every time. A small but consistent advantage, compounded over time, can lead to remarkable results.
Imagine an equity ETF expected to gain 11% over a year. As a simplified illustration, assume it moves only +1% or −1% each trading day, real daily swings are typically larger and less even. Reaching that return this way would mean 131 up days and 119 down days out of 250 trading days.
Positive days outnumber negative days by only a small margin, 52% versus 48%. Because daily market movements are mostly random, frequent monitoring is useless. What looks like a trend is often just noise. In other words, by zooming in, the probability of being on the right track is close to 50%. And it is only over the long run that the real picture, the merits of the ETF investment, starts to emerge.
The story is not just about numbers. Human psychology also plays an important role. Daniel Kahneman, who won the 2002 Nobel Prize in Economic Sciences for his and Amos Tversky's work on decision-making under uncertainty (prospect theory), showed that the pain of losing money is about twice as strong as the pleasure of gaining the same amount. This tendency, known as loss aversion, is a powerful force that influences how we make decisions.
This has important consequences for investors. As each gain creates one "unit of happiness," while each loss removes two, an investor who checks the ETF's price every day is likely to experience more stress than satisfaction over the course of the year. Even though positive days slightly outnumber negative ones, losses have a much stronger emotional impact.
The effect is similar to constantly following negative news: over time, it can weigh on your mood and well-being. In the same way, repeatedly checking market prices may seem harmless, but it can come at a surprising emotional cost.
Bottom line, checking prices too often is a bad idea. Experts think in probabilities, amateurs react to randomness. Just relax and let the compounding do its magic.
The example above is a hypothetical illustration only. It is not indicative of the performance of any Alpian portfolio.
Your portfolio, built around your goals and how much risk you're comfortable with. A wealth advisor by your side, always.
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Disclaimer : Investments involve risks, including the possible loss of invested capital. The value of investments can fluctuate and there is no guarantee of making profits or avoiding losses. Diversification does not ensure a profit or protect against a loss. Potential investors should consult a qualified financial advisor before making any investment decisions. Please read the full risk warnings and other relevant documents on our website before investing.
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