Do as I Don’t

Richard Quinn

MOST OF US DON’T attempt to make a living trading stocks. Instead, investing is a long-term effort. We’re accumulating wealth to sustain us in retirement. Well, at least some of us try.

To that end, we need to save regularly over many decades, reinvest interest and dividends, and keep our eye on the pot of gold at the end of our rainbow.

How come we find this so hard? We get distracted. We start thinking short term. We pay too much attention to our investments. Yes, I said it, too much attention. Americans are not good at long-term thinking.

Years ago, when I oversaw company 401(k) plans, an employee’s account balance was updated four times a year. Then we moved to monthly updates and, ultimately, we were seduced into daily valuations. Our mindset went from long term to immediate.

Workers began worrying about daily stock market changes. Many started thinking they could beat the market, they began acting on investment tips or—all too often—they simply threw out any long-term strategy in reaction to bad news or market declines. To make matters worse, we added a brokerage option to the plan, where investors could buy individual stocks. Investments and trading were then unlimited.

We had one employee who was especially successful. He traded daily between the stable value fund and the plan’s international stock funds, based on how foreign markets would likely react to that day’s U.S. stock market action. This was before the advent of fair value pricing. He accumulated $2 million in a relatively short time, but the mutual funds then complained about day trading, prompting us to impose a 90-day fund transfer limit for the stable value fund. I must admit, though, I wish I’d thought of the strategy.

Most employees who attempted to beat the market with short-term trading weren’t so fortunate. Heck, most didn’t know what they were invested in or why. My favorite: The folks who were in a target-date retirement fund designed to provide one-stop shopping—who then went and bought several other mutual funds.

Short-term thinking got a lot of people in trouble, as they reacted to market gyrations and locked in losses, when a longer-term perspective would have helped them to see those gyrations as buying opportunities. Once retired, such emotional trading doesn’t help, either, especially since the time to recover from mistakes has disappeared.

But who am I to talk? While I’ve resisted the sell-low strategy over the years, I’m addicted to looking at daily investment performance. I can tell you exactly how much is in my 401(k). Why? I’ve been trying to figure that out. Similarly, I’ve created a watchlist on Bloomberg for my nonretirement investments. I look at it not just daily, but often several times during the day. It tells me my total—as well as daily—gain or loss. As dividends and interest are reinvested, I update my watchlist.

I’m addicted, I admit it, but to no advantage. I look at the total daily gain or loss, and I’m elated and feeling prosperous, or depressed and feeling a sense of failure. It’s like playing golf. One birdie wipes out the memory of the six previous double bogeys.

I keep telling myself, “Take the long-term view.” But then I think, at age 77, is there a long-term view of anything? The best I can hope: Avoid doing something stupid with my money. So far, I’ve resisted those e-mails from a Somali prince who wants to trade $15 million for an airline ticket to the U.S.

I’ve concluded that my addiction has nothing to do with investing at all. It isn’t even about accumulating wealth. Rather, my account balances are just a measure of success or failure. It’s about not being average, a lifelong quest of mine. Perhaps that’s why I often compare my 401(k) balance with national data.

I talked to a psychiatrist friend to see if there’s a clinical definition for my condition. The closest he came was koinophopia, the fear of living an ordinary life.

Despite my condition, I really do know success and happiness in life is not about money. Still, I like being above average and, while I’ve been called many things, ordinary isn’t one of them—and I want to keep it that way.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include About That 4%Banking from A to F and It Took Decades. Follow Dick on Twitter @QuinnsComments.

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