Don't watch markets

Here's a rarity - a dead tree column that's unmitigated wisdom.  John  Kay says you shouldn't follow share prices day-to-day. He concludes:

Many investors will have concluded that the current turmoil makes it vital to be close to the market. The opposite conclusion is true.

Read the whole thing. I'd just add two other reasons not to follow the markets closely:
1. Doing so creates an illusion of knowledge and an overconfidence in one's own ability. This leads people to trade too often. And this, say Brad Barber and Terrance Odean here (pdf) "is hazardous to your wealth."
2. A fall in an asset's price draws attention to its drawbacks (just as a rise draws attention to its merits); we've heard a lot more about the danger of a US slowdown since the S&P fell than we did before, even though the objective risk hasn't changed much.  This effect can encourage people to sell at market bottoms and buy at tops.
There's only one good reason why anyone should pay close attention to the stock market - it's an inherently interesting laboratory for studying behaviour under uncertainty.
And this makes it all the more unforgiveable that so much market reporting is not just gibberish, but boring gibberish.

Comments

[Mark Wadsworth]

Yup. Your best hope of beating the market is to throw six darts in the FT shares page. Buy those six shares. Check on prices after a year at the earliest. And even if you don't beat the market, at least you've not wasted an hour a day on worrying about it all.

[Patrick]

Interesting. I look at the markets daily - and some shares, intra-daily too.

But I very rarely trade, and most of the investments (though not all) I make are now trackers (ETFs).

But I do like to know where the prices are. I just reckon that by the time anything is in the price, it is too late for me to reasonably act.