Posted by André Nosalsky :: October 25, 2007 @ 10:27 am

With Google shooting through the $600 per-share price, ads on the radio promoting getting rich by investing online, and friends who whisper about others who hit the online investing jackpot, it’s no wonder that many people have started investing online.

For many people, online investing has provided them with more control and access to tools that were not previously available. But to others it has proven to be a stumbling block.

Research done by Barber and Odean in 20021 says that many investors do much worse when they invest online compared to offline investing approaches. According to the US SEC there are over 10,000 stocks available for trading and thousands more of mutual funds, making decisions difficult.

Looney and Associates (2006)2 researched how technology and investing are related. They found two things:

1) Your understanding of the Internet and related technologies can give you a biased understanding of investing. When you’re feeling in control because you know how to use the Internet, you might also feel overconfident about your investing capabilities.

TIP: Don’t confuse being confident using the Internet with being confident with your investing skills. They are separate, with investing requiring discipline and homework.

2) The availability of advanced tools and information might give you the feeling of being more in control of your investments. This might be even promoted by brokerages and other companies with statements like “You’re In Control.” Add to that the mountains of information and analysis available to investors that can lead to distorted views and expectations.

TIP: Use real world expectations about the homework that you have to do before investing and with respect to the results that you will receive from those investments.

Next time you hear about the hot stock tip or another revolutionary investing system, remember that investing requires real work and homework to be done in order for you to be successful. Also be sure that you are diversified in your investments, using such instruments as stocks, bonds, mutual funds, and P2P loan portfolios on Lending Club.

1 Barber,B.M.,& Odean,T.(2002).Online investors: Do the slow die first? Review
of Financial Studies, 15(2),455-487

2 Looney, C. A., Valacich, J. S., Todd, P. A., & Morris, M. G. (2006). Paradoxes of Online Investing: Testing the Influence of Technology on User Expectancies. Decision Sciences. 37(2), 205-246.