When markets are tough, don't look

Your ignorance of the day-to-day fluctuations of your portfolio will likely yield blissful results, says Morningstar’s director of global ETF research Ben Johnson

Ben Johnson, CFA 10 January, 2019 | 6:00PM

In Thinking, Fast and Slow, Nobel Memorial Prize in Economic Sciences laureate Daniel Kahneman summarizes decades of work he has done to better understand the way that we think. The book’s title alludes to the two speeds, or in Kahneman’s terms, systems, that we use to process information. System 1 is fast, System 2 is slow. System 1 allows us to respond quickly to external stimuli with limited information. System 2 is more pensive and calculated. Each has its own benefits and drawbacks and together they can help explain the various cognitive biases that Kahneman and his close collaborator Amos Tversky documented.

We owe System 1 an immense debt of gratitude. Were it not for our ability to react quickly, we would not be here. System 1 kept our ancestors from being mauled by megafauna. And while System 1 is still very useful to us, there are many modern-day applications where it can do more harm than good. Investing is one of them.

After an unusually placid 2017, markets have been in tumult. The pain has been pervasive. In 2018, 79% of Morningstar’s 105 U.S. fund categories had negative returns. This was the highest percentage since 2008.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.