The Psychology of Portfolio Tracking: Why Investors Fail

Cognitive biases are evolutionary mechanisms of the human brain, not flaws of education. Even professional investors are subject to them — which is why the best fund managers use rigid decision-making processes, checklists and control systems that limit the influence of emotions. Awareness of bias is not enough: you need a system.

Yes. Academic research (Benartzi & Thaler, 1995) shows that investors who check their portfolios more frequently tend to have lower returns. The reason is simple: the more you look, the more you see negative fluctuations, the more you feel the pain of loss aversion, and the more tempted you are to intervene in a counterproductive way.

A good tracker like DonkyCapital gives you objective data that fights emotional narratives. Seeing that the portfolio has already recovered from six previous corrections reduces anxiety during the seventh. Seeing that your performance has been below the benchmark for three years challenges the conviction that you are a great stock picker. Data is the best antidote to biases.

Loss aversion is the cognitive bias whereby a loss of £100 causes roughly twice the psychological pain as the pleasure produced by an equivalent gain. In terms of returns it leads to two destructive behaviours: holding losing positions for too long hoping for a recovery (instead of cutting the loss and reallocating), and selling winning positions too early to "lock in" the gain. Both systematically worsen long-term returns.

There are clear signals: you make decisions immediately after reading an alarming or exciting news story, you check your portfolio multiple times a day, you feel a strong urge to sell during market drops, or you buy assets that have already risen significantly. Another indicator is whether your decisions change based on your mood rather than fundamentals. Keeping an investment decision journal — recording your reasoning — helps you recognise these patterns over time.

The disposition effect is the tendency to sell winning assets too early (to "lock in gains") and hold losing assets for too long (to avoid realising the loss and having to "admit the mistake"). This behaviour has real consequences for returns: you let losers run and cut winners — exactly the opposite of what you should do. The right question is not "am I in profit or loss?" but "if I didn't already own this position, would I buy it today at current prices?"

Yes, it is completely normal. Market anxiety is an evolutionary response of the human brain — the alarm system that protected us from predators in prehistoric times reacts the same way to financial loss. The problem is not feeling anxious, but acting on it. The most effective strategies are: avoid checking your portfolio on days of extreme volatility, remind yourself that market corrections are historically followed by recoveries, and have a clear plan defined in advance for these scenarios.

Research shows that investors who review their portfolio monthly achieve better returns than those who check daily. The ideal frequency depends on your strategy: for a passive investor using ETFs, a monthly review is more than sufficient. For an active investor, weekly can work — but never more than once a day. DonkyCapital helps by setting automatic alerts: you receive a notification only when something relevant happens (rebalancing needed), not for every price fluctuation.

Yes, significantly. A good tracker provides objective data that replaces emotional narratives: instead of vaguely remembering that "the portfolio had risen a lot", you see exactly +14.3% TWR over the past year. Instead of fearing that "the market will never recover", you see that your portfolio has already recovered from five previous corrections averaging 7 months. Data does not eliminate emotions, but it puts them in perspective. DonkyCapital is designed to provide this objective perspective at every stage of the market.

Recency bias is the tendency to give too much weight to recent events when making decisions. If markets have risen for three consecutive months, we tend to believe they will continue rising indefinitely — and we increase exposure exactly when the risk is highest. Conversely, after a crash we tend to believe there will never be a recovery. To counter it: always look at performance across multiple time horizons (1 month, 1 year, 3 years), use benchmark comparisons over long periods, and remind yourself that an asset's recent performance is the least predictive indicator of its future performance.