How frequently should you check stock prices? I know a few who are constantly glued to the stock screen on their laptop or mobiles. And on days like today when the market does something different - goes up or down by a lot - there is a tendency to act.
Do you check your blood pressure or blood sugar 10 times a day? If you did, you would go crazy with the amount of noise generated by the random data. For long-term investors, looking at the price once a week or fortnight is good enough, unless, of course, you are a trader.
Similarly, having a portfolio of good businesses is the best bet for long-term wealth creation. In this nice article, the author Joe Wiggins articulates the pitfalls of continuous stock monitoring.
There is a mismatch between short-term feedback and long-term goals: If the objective of our investment process is long-term in nature; using short-term performance as a means of assessing its robustness is likely to be at best meaningless and at worst entirely counter-productive. All investment approaches will endure spells in the doldrums and reacting to these with constant process modifications is a certain path to poor results.
The need to always be doing something: Keeping faith with an investment process for the long-term means a lot of time doing nothing. This sounds easy but is anything but. Financial markets are in a constant state of flux, perpetually generating new and persuasive narratives. Temporary fluctuations in markets often feel like a secular sea change when we are living through them. The urge to act is strong.
Thought of the Week
Echoing Pascal, who said some version of ‘All of humanity's problems stem from man's inability to sit quietly in a room alone,' Munger adds an investing twist: “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.”
The ability to be alone with your thoughts, and turn ideas over and over, without the do something syndrome affects so many of us. A perfectly reasonable deviation is to hold your ground and await more information.
~ Charlie Munger
Video of the week: Forensic Accounting
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