Humans don't like being idle. All other things being equal, sure, we'll take the lazy way out. But if taking action gives us some sort of reward, we'll do it -- and feel more satisfied that we weren't sitting around doing nothing. That tendency can be bad news for investors, but it's a real boon to the companies that profit from our collective itch to just do something.
In a recent experiment, University of Chicago psychologist Christopher Hsee found that if people were offered the same piece of chocolate for either waiting a few minutes, or walking a short distance to fetch it, they waited. But if they could get a slightly different chocolate (dark chocolate vs. milk chocolate) by walking, most would walk.
Brokerage companies TD AMERITRADE
A holding problem
The average holding period for stocks on the New York Stock Exchange has plummeted, from more than five years in 1970 to just nine months in 2009. Trading frequently is easier now, with lower commission costs and far greater access to information and stock ideas. It's a combination that many find hard to resist.
Yet investors would do well to rein in their trading. (Especially all you single men!) As business professors Brad Barber and Terrance Odean have found, frequent trading is "hazardous to your wealth."
According to a recent report from Schwab, its clients' average daily trades in May 2010 increased 17% over April levels, and 14% from a year ago. TD AMERITRADE's numbers rose 13% from April, and 18% from a year ago. Some of that owes to constant investments of new money, but much of it simply reflects investors' impulse to take action in turbulent markets -- often without any good reason.
Be aware of your tendency to act, and don't let yourself get derailed by restlessness. Find the best investments you can, and aim to stick with them as long as they remain compelling.
Even if you're not an active trader, you still need a brokerage account. Check out the Fool's Discount Broker Center to find the best broker for you.
