Ordinary investors should be alert for the negative consequences of online price tracking alerts, according to a new study.
Trading apps increasingly allow users to set price alerts for individual stocks, notifying you when the price falls or rises to a preset level.
The rationale is price alerts “save time and help investors catch what they need to know”, as one brokerage puts it, but the new study reveals “unintended consequences”. Quite simply price alerts are more likely to make you poorer, not richer.
The study, which compared the performance of 932 Taiwanese investors who used price alerts to a control group that did not, found the service hurt investment performance by about 2 per cent a year. Why? The authors found price alerts made investors over-confident, resulting in excessive trading and “suboptimal” market timing.
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This was particularly true among uninformed investors – in true Dunning-Kruger fashion, using price alerts made them think they were more informed than they really were.
The results aren’t surprising. A 2022 study found push notifications make investors pay more attention to their portfolios and to markets, with this increased attention causing “worse decisions than if investors paid no attention at all”. Paying too much attention to your portfolio isn’t a good idea. With investing less is more.
