Two of the greatest advantages of publicly traded stocks over other asset classes include their very high level of transparency and liquidity. Translated into laymen’s terms, you can get a precise price quote at any time, and buy/sell shares in a fraction of a second, with the click of a mouse, six and a half hours a day, five days a week.

Yet, these very same qualities that can make stocks more efficient and desirable than many other asset classes (real estate, commodities, art, collectibles,etc.) can lead investors to make decisions that are contrary to their financial health. Why is it that the average investor has earned about a third of market returns over the decades (about 3.4% versus nearly 9% for the overall market)? Simply put, the typical retail investor buys when he should be selling, and sells when he should be buying.

This sub-optimal behavior is largely driven by the fact that prices are flashing in front of his eyes on a minute by minute basis, which in turn leads to the reality that he can — and often does — take emotionally-based actions (read: click that mouse) on a moment’s notice. With other asset classes, like private equity where investors typically can’t sell their stakes for 5 – 7 years, owners are not able to take actions that can hurt their bottom lines even if they wanted to. Underlying prices are not readily available and a quick transaction is rarely an option for privately held companies.

Thus, buy/sell decisions are made in moments of calm, with purpose based on fundamentals and valuations — not driven by financial talking heads screaming, “the world is falling apart! Run as fast as you can!!!”

Imagine if other financial assets you held had ‘tickers’ above them constantly flashing the latest price at which a mass of millions of people you don’t know are willing to buy or sell the asset for at any moment in time. Contemplate walking out of your house one morning only to find out that you ‘lost’ $20,000 over night due to the fact that your neighbor down the street found mold in his basement and thus now all homes in your area are worth less according to the market. And then by the time you get home that same ticker flashes green — your home is now worth $5k more than that morning since it turns out the mold was an isolated incident.

Such a pricing mechanism would drive you crazy if not cause you to make sub-optimal, impulsive near-term decisions to the harm of your long-term financial welfare.Yet, that is what happens every day to stock investors who are otherwise invested for the long-term — as they should be given that equities are generally appropriate investments for time frames of 5 years or longer. Since many investors in effect can’t help themselves, they feel compelled to track every tick of stock prices (and it certainly does not help that many financial entertainment — I mean news — programs have a countdown clock indicating how much time is left in the trading day down to the hundredth of a second!), and sell when they 'can’t take it any more' only to buy the same stocks back once things have ‘settled down’ which is just another way of saying once stock prices have gone back up.

Hence, the terrible under-performance by the average investor of the broad market.

Stocks have provided one of the best long-term performance track records of any asset class and they have the benefit of high transparency and liquidity. But these characteristics are only advantageous if you use them to your benefit, not your detriment. The next time the price of some quality company is flashing red in your face, take a step back and assess what it really telling you. In most cases, the conclusion will be that it is a good opportunity to buy more shares of the quality company, or at a minimum take no action (what a concept!). Just because you can see the price of an asset and can sell it at a moment’s notice does not mean you should. That’s pretty transparent.