O Technology!

  • O Technology! How I tire of thee, why do you influence me?

You remember Bob from the previous post? He was just someone I made up, but his behaviour represents the vast majority on how people act and I believe he lives in all of us – the Bob in us wants to do things NOW –

Buy NOW!

Sell NOW!

Everything is NOW! NOW! NOW!  And it’s ruining your returns!  Wait!  Really!?

Yes, and it’s the adoption of modern technology that has influenced this.

I want you to bring your attention to the chart below:

This chart illustrates the holding period for stocks by investors divided into decades.  Notice a trend from the 40s to now?  And yes, Bob lives in 2010.

We are holding stocks for shorter and shorter periods as the decades progressed.  Back in the 40s – 70s, people held stocks for 4-8 years on average.  In the 2010s, that holding period shrank to a few months!

So what happened?

Back in the day to purchase a stock one had to rely on their broker due to communication constraints which often took weeks from initial investor/broker contact to trade execution to investor confirmation of trade.   Brokers also charged very high fees and trade commissions.  Stocks were originally meant to be held for long periods and investors committed to each and every stock they bought for years and years as a result.  The constraints and costliness further encouraged investors to hold their investments and not to flip them like we do today.  And it is this very ‘buy and hold’ behaviour that generated the massive returns.

Today, we don’t need a broker.  We only need a smartphone and a trading account to make trades.  Confirmation of trades take seconds, faster than you can think buyer remorse.  And online trading fees make it much more affordable.  Our behaviour on investing has changed so drastically through the decades because it is so accessible and so affordable.

But isn’t all this technology to make it cheaper and more convenient for us to trade a good thing?

Take a look at this:

More times than not, the Bob in us convinces us to sell our stocks way before the true value and profits have time to reflect in its stock price to make you money.  The risk goes down the longer you hold while the value of those companies grow.  If you want to make money in stocks the moral is this –

Remove the trading habit and let your stocks sit!

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