New Year’s resolutions are an annual ritual for many, with health-related resolutions among the most common. In the spirit of the season, investors should consider making (and sticking to) 2023 New Year’s investment resolutions to lead a healthier investment life.
The following resolutions may reduce stress and improve investment performance:
The “activity bias” is a common behavioral pattern among investors who closely follow the day-to-day (or minute-to-minute) activity in the markets. Many investors would benefit from finding a healthier balance between being well informed and being overly stimulated by market news.
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Investors who struggle to find that balance often trade more frequently than is advisable, leading to adverse performance and tax consequences.
Consuming less business and political news may be a healthy resolution for those who find themselves bingeing on the latest tweets, broadcasts and articles.
2. Spend Less Time in “Echo Chambers.”
Confirmation bias is the tendency to seek evidence that supports preexisting beliefs and to interpret information in a way that supports an existing position. The echo chamber (opens in new tab) that comes from avoiding contrary viewpoints can lead to costly investment mistakes.
Seeking contrary points of view is a necessary step in testing an investment point of view and an important (and perhaps uncomfortable) resolution for 2023.
3. Take an Objective Look at Your Portfolio.
The New Year is a logical time to evaluate your current investment holdings. Some recent winners may have benefitted from a favorable market environment and may not be able to sustain their success. If recent success isn’t sustainable, it may be time to look for opportunities to upgrade the holding to an investment with superior prospects.
The same analysis should be applied to less successful positions. Evaluating whether losing positions are likely to recover is a critical aspect of portfolio management. Oftentimes, recent laggards are tomorrow’s leaders. But some investments that seem cheap today can get a lot cheaper!
In a rapidly changing environment, it is important to be vigilant about winning and losing investment holdings.