Investors Lose More to Overtrading Than Market Crashes

Aspen —The Iran War. Soaring fuel costs. AI eating jobs. U.S. politics. Read the headlines today and your stomach drops, right? It’s a lot to navigate. But here is the counterintuitive truth: your portfolio isn’t bleeding out because of geopolitics or artificial intelligence. It’s bleeding out because you’re clicking the "Buy" button too often, or selling in a panic.

According to Littlejohn’s column in the Aspen Times, investors make unforced errors that do more damage than any market crash. The obvious take is that external chaos dictates your returns. In practice, it’s your own behavior.

Let’s do the math on why you’re losing money.

Overtrading and Market Timing Every time you make a trade, you incur costs. You often create a taxable event. And you risk making a mistake. Littlejohn points to research by Barber and Odean, specifically their 2000 study "Trading Is Hazardous to your Wealth." The finding is stark: less-frequent trading leads to better investment results.

It sounds simple, but it fights against human nature. When a stock dips, you get nervous. You sell to lock in your loss — meaning it’s no longer a paper loss, it’s real. Then you wait for the market to calm down before buying back in. By then, you’ve missed the early part of the rally. You’re chasing a rebound that already happened. If you own broad stock market index funds, staying fully invested allows you to perform as well as those indexes. Historically, they have performed very well over long periods of time. Sitting still is harder than clicking a mouse, but it pays better.

FOMO and Overconfidence Then there is the herd mentality. Fear of missing out (FOMO) drives you to buy into the latest hype after substantial gains have already been made. You join in when things are hot. For a month, that feels great. Then the stock turns cold next year, and you’re left holding the bag. Littlejohn notes that chasing performance is a great way to lose money, and it’s certainly not what made Warren Buffett successful.

Add in overconfidence, and you have a recipe for disaster. During a bull market, it’s easy to think your last winning pick was skill rather than luck. If you believe you are smarter than the market, you’re inclined to make riskier moves or hold poor positions longer than you should. You mistake speculation for investing.

For context, this isn’t just abstract financial theory. It’s the difference between a neighbor in Aspen who sells their tech holdings during a 5% dip and one who holds through the noise. The first person locks in losses and misses the recovery. The second person rides the index to its historical average return.

The headlines will keep screaming about war and fuel prices. You can’t control those variables. But you can control your trigger finger. The data suggests that the biggest threat to your wealth isn’t the market; it’s you, reacting to fear instead of sticking to a disciplined strategy.

Stop checking your portfolio every hour. Stop trying to time the bottom. The boring, disciplined approach — staying invested in broad indexes and ignoring the hype, is where the money actually stays.