1 Simple Trick to Reduce Stress During Market Crashes

At its close last Friday, the Straits Times Index  (SGX: ^STI) is down by nearly 20% compared to its high in April.

For some, it could be stressful to see their stock holdings evaporate considerably in a matter of weeks due to the stock market correction.

It is certainly not a pleasant experience to watch your share prices dwindle on what seems to be on a daily basis. But, we should note that the act of looking at share prices alone may have more consequences than we are aware of.

And for that, we have our weird brains to thank.

Keeping your eyes on the right things

In his book Your Money and Your Brain, author and financial journalist Jason Zweig described the findings of Nobel-prize winning psychologist Daniel Kahneman:

“Several experiments by Kahneman and other researchers have found that the more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.”

Said another way, watching stock prices on a daily basis may cause us to imagine movement-trends which do not exist. Even worse, ‘spotting’ non-existent trends may even influence us into buying or selling our holdings at inopportune moments.

Thinking of selling

Imagine a scenario where you have a home that is worth $350,000. Every minute, there would be a housing agent offering a low-ball price of between $150,000 and $180,000 for your home. I would reckon that by the third time of asking, you would be chasing the housing agent away.

Furthermore, it is unlikely that you would sell your home based on the direction of the low-ball price offered by the housing agent.

There are similarities in this scenario with the stock market where your stocks may get a price offer almost every minute. Should we be concerned on where the prices are heading on a minute by minute basis? Is it necessary to know the stock price on a minute by minute basis?

I would argue that looking at stock prices is not as important, and should be avoided. What’s way more important here is to look at the business underlying the stock and figure out its likely prospects over the long-term future.

Foolish Summary

The danger of looking at stock prices too often, as Zweig highlights, is that we may get influenced into selling our shares due to the movement of the prices. As my analogy with housing above shows, if we know the value of our companies, we may not want to sell on a whim.

Instead, we might be better off just switching our computers off and finding better ways to spend our most precious resource – our time – on things that help us do better in investing.

That could be a less stressful way to spend your time.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.