How often is too much?
How do you know if you're checking your investments too often? While some people check them every day, others don’t look at them at all. First, we need to differentiate between the different types of investors. Day traders certainly must watch their trades constantly, in many cases decisions are made every 5 or 15 seconds.
If you invest in individual stocks, you certainly want to keep up with company fundamentals, company news, industry trends and how the stock price reacts to these things. That often requires attention several times throughout the week.
Being invested in a balanced, diversified portfolio is a different ball game. Unfortunately, some apply the characteristics of day trading and individual stock trading to that type of investment and make decisions that are often destructive to the portfolio. A balanced diversified portfolio is made up of a wide array of stocks and bonds that are diversified by industry, sector, credit ratings, duration and geography. These stocks and bonds are lumped into funds that are managed by a team of researchers and fund managers. To assess the performance and quality of such portfolio, each individual part has to be benchmarked to its peers. Annual or semi-annual statements don’t do that and can be misleading about the actual performance of a portfolio.
Looking at your portfolio value or a statement should never be the trigger for a change in your investment. Whatever you are reacting to, has already happened and emotions have no place in successful investing. The cycle of market emotions has always applied to many retail investors. While markets are going up, people at parties, trips or in bowling leagues are like ‘Hey, are you in on this? I'm making so much money.’ People don’t want to miss out and buy in.
When it starts coming down, it will first be seen as an opportunity and some even buy more. But when it keeps coming down, it starts to hurt a little bit and then it will keep coming down and will keep kicking people in the gut until they reach the point of ‘Oh my gosh, I got to get the heck out of this thing, I'm going to lose it all.’
Quite often the fear of losing it all replaces common sense and the recognition that this is the point of maximum financial opportunity. The Warren Buffett quote to be “fearful when others are greedy and greedy when others are fearful” has exceptions, but mostly still applies. As long as the underlying asset is intact, why wouldn’t you want to buy something on sale?
The stock market is a psychological trap. It constantly tricks investors into buying high and selling low, and then missing out when the markets recover. This has been the pattern for ages, including the recession of 1974, the crash in 1987, the dot-com bubble in 2000, the 2007/8 financial crisis and the 2020 pandemic.
You can stay ahead if you understand the principles of what drives the market, or if you hire people that do. What doesn’t work is making investment decisions based on hype on TV or the internet, your colleagues stock tip or the numbers on your statement. Any reaction to that is late and will most likely accomplish the opposite of what is intended.
Financial Markets will go through down periods, and so will your balanced diversified portfolio. Sometimes these periods are longer and sometimes more severe, like in 2022. Many abandoned their strategy because of that and missed out on a strong rebound.
Looking at the history of all major financial markets, it should be easy to make money long term. But time over time investors lose money for all kind of different reasons. The influence of media, main stream and alternative, is not helping that matter.
Bombarded with over dramatized financial news and commercials that mislead into thinking that the lower fee options guarantee a richer retirement, good decision making can be difficult. If you invest on your own, do your own research and cut out all the noise. If you work with an advisor, make sure you are aware, comfortable and in agreement with the strategy, so you don’t abandon when you are tempted.
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