The first few days of the year had gone in a jiffy, as I sat lazing around, doing only the most essential things. And she hated me for this.
"V, you need to do something," she had told me on each of the first five days of January. And had gone unheard. But this couldn't go on forever.
"We needed to discuss my investments," she said, as soon as she entered my room with a view, on the sixth day of January.
"Investments?" I asked.
"Yes," she said. "Which part of what I said did you not get?"
"Okay, tell me," I conceded.
"So I was going through my equity mutual fund SIPs, and most of them barely gave me any return last year."
"Yes that's true. Last year wasn't a great year for SIPs. But as I keep saying you shouldn't look at SIP returns over such a short period of time."
"Yes that you keep saying," she said.
"In fact, obsessing about your investment portfolio and looking at it, over and over again, isn't a great way to go about investing."
"Really?"
"Yes. Nobel Prize winning economist Richard H Thaler, makes this in his book 'Misbehaving: The Making of Behavioural Economics'."
"And what does he say?"
"For that I will have to get up and locate the book."
"Get off your chair, you lazy bum."
I managed to get up, realising fully well that my small holiday was coming to an end. In a couple of minutes I had managed to locate the book.
"This is what Thaler says: "More often people look at their portfolios, the less willing they will be to take on risk, because if you look more often, you will see more losses."
"What does he base this conclusion on?" she asked.
"He carried out an experiment with three other academics: Amos Tversky, Daniel Kahneman and Alan Schwartz," I said.
"And what did they do in this experiment?"
"Two sets of students where given the job of managing money. As Thaler writes: "The subjects had only two investment options, a riskier one with higher returns and a safer one with lower returns... What we varied was how often the subjects got to look at the results of their decisions. Some subjects saw their results eight times per simulated calendar year of results, while others only saw their results once a year or once every five years.""
"And what did the results suggest?"
"As Thaler writes: "'Those who saw their results more often were more cautious. Those who saw their results eight times a year only put 41% of their money into stocks, while those who saw the results just once a year invested 70% in stocks.""
"So what does this tell us?"
"If you want to make money by investing in stocks, you shouldn't be looking at your returns all the time. You will look at losses more of the time, and this will drive you away from the stock market."
"Hmmm."
"In fact, there is some real evidence from Israel."
"Is there?" she asked.
"Yes. In fact, the government agency which regulates the retirement savings industry in Israel, changed the way in which investment returns are reported. This happened in 2010."
"And?"
"As Thaler writes: 'Previously, when an investor checked on her investments, the first number that would appear for a given fund was the return for the most recent month. After the new regulation, investors were shown returns for the past year instead... After the change investors shifted more of their assets into stocks. They also traded less often and were less prone to shifting money into funds with high recent returns."
"Okay."
"Hence, if you want to invest in stocks, directly or indirectly, for the long term, and earn good returns, looking at the investment portfolio very regularly, doesn't really help."
"Yeah that seems to make sense."
"It does," I said, annoyed that my nice little holiday had come to an end.
The example is hypothetical.
Vivek Kaul is the author of the Easy Money trilogy.