What does a difficult decision look like? One where there are lots of moving parts, a constant stream of new information, plenty of emotional stimulus, and nothing to stop us reacting to it all.

This is exactly the type of choice investors have to deal with – with one small addition. We have to make the decision over and over again.

Every interaction we have with financial markets creates a new decision point. We are constantly receiving new ‘information’ (I use this word loosely) and, implicitly, asking ourselves the question: “Do I need to change my portfolio?” *

Whenever we check our portfolio valuation, or even read a financial news article, it is shifting the way we think or feel about our investments. What we do about this will depend on how emotive or compelling whatever we are engaging with is.

To make matters worse, our choices are also unavoidably affected by entirely superfluous factors. If we are having a bad day, it will influence the type of investment decision we might make.

Unfortunately, we live in a world where we are increasingly bombarded by ‘investment stimulus’, and technological progress means that we can act on this immediately. Using one device and a few swipes or clicks, we can read a concerning article, check our declining portfolio valuation, and switch assets, all in the space of sixty seconds.

To have any chance of being a successful long-term investor, we need to make decisions that are consistent, slow, and infrequent. What does this mean?

• Consistent: Follow a process where we are clear about what our aim is and what information matters.
  
• Slow: Consider any new information carefully and never when in a hot, emotional state.
  
• Infrequent: Trade rarely. Doing nothing must be the strong default.

The problem investors face is twofold: 1) We are naturally disposed to be highly alert to new information, acutely sensitive to short-term risks, and responsive to what our emotions are telling us. 2) Technological and investment-industry developments mean that the environment is increasingly encouraging the exact behaviours that are likely to harm our chances of good long-term outcomes.

From an investment-industry perspective, the focus should never be on whether a piece of investment communication is a ‘good article’ or whether a rollout of platform technology represents ‘positive progress’. Rather, it should be asking: “Is what we are doing likely to help someone make good investment decisions over time?”

The job of industry participants should be to improve the odds of their clients meeting their objectives. To do this, understanding how what they do is likely to impact client behaviour is paramount, but often seems to be an afterthought.

Investment decisions are incredibly complex and difficult; it is very hard to achieve good long-term outcomes if we are forced to make them every day.

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* Very probably not.

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My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).

All opinions are my own, not that of my employer or anybody else. I am often wrong, and my future self will disagree with my present self at some point. Not investment advice.