Investing and the Illusion of Control

Picture two young boys playing a video game. The two friends are having a good time until the little brother of one of the boys wanders in and demands they let him play. When they refuse, of course, the little brother calls out, “Mom!” Then, of course, Mom tells the boys to let the little brother play. So, what can these boys do to appease the little brother while, at the same time, keeping him out of the game? Here’s what they do: they give him a game controller but, without telling him, they don’t plug it in to the console. So, staring at the TV screen, the little boy thinks that he’s playing the game when he actually doesn’t have any control over it whatsoever!

This scenario plays itself out in a variety of contexts in life. Sometimes, people want us to feel like we have control because it makes us more compliant, while they are in actuality not giving us any control at all. A parent may give his or her child a fake steering wheel while they’re on a car trip so the child can feel like he or she is driving. A boss may have his employees fill out suggestion cards to make them feel like they’re giving input, while none of the suggestions will ever actually be implemented. And finally, when it comes to investing, financial advisors will try to convince investors that buying and selling stocks will give them more control over the outcomes of their investments.

The truth is that more activity does not correspond to greater control. Stockbrokers want investors to buy and sell as frequently as possible, because the brokers make money off of each transaction. A flurry of activity in investing, though, amounts to being that little boy whose controller is not plugged in. It looks like you’re contributing to the outcome of the game, but really all you are doing is pushing buttons.

Investors who fall into the trap of initiating as many transactions as possible in an effort to achieve greater success are really no different than gamblers who think they’ll get lucky eventually if they just keep playing. Studies have shown that when gamblers physically pull the lever on a slot machine, they feel as if they have greater control over the outcome. The same sort of thing happens when investors think they can get greater returns by buying and selling than they can by holding. Doing something, we tend to think, is always better than doing nothing. The reality is, though, that this way of thinking cannot be further from the truth.

The secret to success in the world of investing is not activity, but patience. If you’re invested in funds that are consistently being rebalanced, the best thing you can do is wait. The market will eventually give you the results you’re hoping for. Activity is not control. Buying and selling often feels good and proactive, but the reality is that activity is often counterproductive. The best thing for you to do is to stay the course. If you need any help understanding how to develop the discipline to wait it out, feel free to reach out to us for a complimentary consultation. We’d love to help you gain the patience you need to get the results the market produces in your investments.