Addicted to checking the price of your stocks every day? How often do you check your stock prices?
It’s very easy to fall into the trap of checking your stocks prices or portfolio value on a daily basis. It’s very tempting and we feel that we somewhat have more control of the outcome when we do this. With today’s technology is also very fast and easy to do this. However the research shows that people who check their stocks frequently on average gets a lower annual return on their investments than people who check less frequently. Actually the one who had the highest returns where the ones that had forgotten they had a stock portfolio and people who had deceased! The reason for this is that checking your stock prices often will lead to over-trading which then will lead to lower returns because of higher transaction costs. Remember in investing we usually are our own worst enemy and seeing you stock prices or portfolio value going up and down on a daily basis will trigger our non rational part of our brain to do stupid things.
One of the reasons is that we feel more than twice as much emotional pain when we see a loss in our stock account than with the equal amount of gain. So that means that a sure way to feel miserable is to check in on your stocks daily, because the fluctuation in stock prices in the short-term is random, close to 50/50. One of the keys to successful investing is to be able to control your emotions and be disciplined, and checking the stock prices daily is making it much harder for yourself. Setting up the environment around you so that you get less affected by the emotional brain and use more of your rational brain is very important.
Also for the long-term investor there is no need to check the stock prices frequently. First; the markets daily fluctuation in prices does not tell us anything if you have done a good investment or not. That is only after 1 year or longer that you can use the market price as an indicator of you did a good buy or made a mistake. Also the reason in the short-term for the fluctuation in stock price is because of market participants need for liquidity or just for reasons neither I or any other “experts” really know. Second; companies does not change that fast. The business of a company does not change more frequently than maybe every quarter or even on a annual basis. So to check your stock price on a daily basis to check how your company is performing just don’t make sense for the long term investor.
It’s also quite stressful to look at your stock prices daily and one of your goals with investing is to invest with the least amount of stress on a daily basis. The less stress you have the higher chance of better investment decisions. Our brains don’t operate well under stress, because under stress we rely more on our instincts and emotions rather than our rational decision system; a sure way to reduce your chances of high investment returns.
I can assure you that the best value investors are not concerned about their stock prices on a daily basis, but are more concerned about the stocks financial performance on a quarterly and on a annual basis.
Here is my advice for avoiding falling into this trap:
- Nothing bad happens if you stop following your stocks on daily basis. Relax and do other more useful things like reading great investments books.
- Remember that your long-term returns will likely suffer if you frequently check your stocks prices.
- Remove stock price apps from your smart phone/computer!
- Do not check your stock prices more than maximum once per month. Even less frequent is also OK. I suggest looking at your stocks on the 1’st in the month if your really feel the need.
- When you check your portfolio, don’t get concerned about the decline of individual stocks, but instead you should track the total value of your portfolio over longer time periods. Check out the total portfolio value tracker at the free investor material page
- Set up automatic price alarms that will alert you when your stock is reaching its intrinsic value or when it’s dropping to a price that you would be interested in averaging down. Gurufocus.com has a great price alarm tool for this.