Is Technology to blame for the Diminishing Holding Period of Stocks?

I love my gadgets!

It's obvious that technology has affected our attention spans in all aspects of our lives. We can see it every day and probably every hour. Just look around. First, it was the mobile phone creating unwanted interruptions at restaurants, coffee shops and meeting rooms. Then came text messaging and with it the constant need to read and respond to texts. More recently Instagram, Twitter and Facebook have created their own attention sapping powers. It's amazing that we still speak to people face to face. Well at least sometimes we do.

 

Can technological advances also be to blame for the lack of attention span with regards to how long investors hold a stock? Every day investors have access to a steady stream of information right at their finger tips. Are the TV, radio, internet and smartphones to blame for the average holding period of stocks plummeting over the last 50 years?

 

The below graph is from an article at Business Insider that displays the average holding period of stocks from 1940 to 2010.

 

 

The average holding period for stocks has gone from around 8 years in the 1960's to around five day's in the past decade. Much of this is due to the creation of new products such as ETFs and high frequency trading. However, there is no doubt that the average retail investor is holding stocks for much shorter periods.

 

I don't know if technology is entirely to blame but it may be responsible for exasperating the feelings of fear and excitement when the market goes through periods of increased volatility. One day you turn on your TV or smartphone and it seems the world is coming to an end as stocks crash then two days later it's all rainbows and unicorns and a great time to buy stocks. Adding to the confusion and noise are the differing analyst opinions and ratings. How can three different Wall Street analysts with similar access to information each rate the same stock a buy, sell and a hold? Who do you listen to?

 

Seeing through the market noise or at least filtering it to some degree is absolutely essential when holding stocks for a long period of time. This can best be accomplished by reviewing the reasons for initiating a position in the first place. Having a written plan for any stock purchase is essential to being able to hold through times of uncertainty. If the reasons for your stock purchase haven't' changed and your stop loss hasn't been hit there is probably no need to sell. Don't let the bombardment of information from your different tech devices dictate your decision making for buying and selling stocks.