I recently came into the 21st century by getting a smartphone, and it didn’t take me long to recognize that if the device were truly intelligent, it wouldn’t allow me to access my investments so easily.
Oh, there’s no denying that the smartphone can be a powerful tool. But it’s a bit like giving the average person a nail gun, capable of quickly putting up a real structure in the hands of a carpenter but equally capable of requiring a visit to the emergency room when wielded by a novice.
Financial-services companies have rained apps on the public, all meant to help track and manage investments, and if the advances stopped with merely being able to pay bills and observe your portfolio in real time, then most people would probably benefit from the deluge.
But they don’t stop there, and neither will consumers using the technological advances.
Fidelity Labs, a part of Fidelity Investments, recently previewed its market monitor service for Google Glass, the first investing “Glassware.” Glass is a tiny computer built into a frame that rests above the eye, purportedly making for faster and easier on-the-go computing activities. Effectively, it’s a “heads-up display,” the way a fighter pilot’s helmet gives them aircraft/flight information without ever having to look down.
It’s cool, but that doesn’t make it particularly helpful.
My short time with a smartphone has made it obvious that the increase in personal productivity that someone can get by being able to handle chores like bill-paying and more by phone is impressive. Sadly, it’s equally clear that constant access to one’s finances tends to turn running money into an obsession more than a necessary activity.
Worse yet, the developers of most new applications don’t just want consumers to believe their service is worthwhile; they want them thinking that what they’ve got on their phone is a technological marvel.
Thus, fans of the E-Trade baby like to believe that they can act in an instant on the latest news, sitting on their smartphone, when they’re in the fray against pros sitting at their desks. As one day-trader I know put it: “It’s your smartphone — and the distractions you have when using it, and the potential troubles you have connecting on the go — against the terabytes of memory and data I’ve got at my desk. It’s not just that you brought a knife to a gunfight, it’s that you think you’re well-armed.”
Mike Stern, director of financial services at Xtreme Labs, the largest app developer in North America, took it a step further, noting that the professional stock jockeys don’t just have the computing horsepower, but “they have technology that was built for them, as opposed to all of the other stuff in the app store that, truthfully, was built for amateurs and that is going to be used in a pretty juvenile way.”
“We are still pretty early in the cycle here,” he added, “and it’s exciting that you can trade on the phone, but that doesn’t mean that most people should actually be doing it all the time.”
What’s more, the constant, nonstop flow of information is going to make people want to use their apps and tools more.
Human brains are wired to process, evaluate and react to information, and the more data fed to your brain about your investments, the more likely you are to react. The more you think your tools are good, the more you think you will benefit from these moves.
If the market takes a nosedive tomorrow and the average investor sees their portfolio value dropping and net worth shrinking by the minute, there will come a point where the moment-by-moment observations will trigger some sort of self-preservation mode, the urge to do something when just standing there would be better.
The lesson of Black Monday 1987 — the worst single day on the stock market today’s average investors have ever lived through — was that the inability to sell out early in that day meant that they could not succumb to their emotions and turn a short-term market move into a long-term personal portfolio disaster. Investors stuck with their discipline in large part because they had no choice.
Countless studies show the false sense of power people gain from snippets of information is precisely why investors typically do worse when they trade more.
Amid the rush of trying to get things “right” based on what some app is telling you now, it’s easy to forget tax implications and trading costs; in real life, those burdens make it even harder for investors to come out ahead of the game.
Worse yet, there’s plenty of evidence to suggest that the people using financial apps don’t know how to actually use the app itself.
Stern, from Xtreme Labs, noted that only half of the customers using mobile banking and investment applications report that they fully understand the capability of the technology.
“The other half of the people using the apps, they really don’t know what power they are holding or how it really works or could work,” Stern said. “They know just enough to be dangerous.”
That danger is to themselves, and it’s done under the guise of something “smart.”Chuck Jaffe is senior columnist for MarketWatch. He can be reached at email@example.com or at P.O. Box 70, Cohasset, MA 02025-0070.