The 2nd article ever written on Sure Dividend was titled 3 Tips to Stop Checking Your Stocks Constantly. There’s a reason for this – it’s a very important topic for the self-directed investor.
ValueWalk readers can click here to instantly access an exclusive $100 discount on Sure Dividend’s premium online course Invest Like The Best, which contains a case-study-based investigation of how 6 of the world’s best investors beat the market over time.
Constantly paying attention to the stocks you hold is detrimental to your wealth. The more often you check your stocks, the more compelled you will be to do something.
In most realms of life, activity leads to success. Investing is not the same.
Trading stocks for the sake of creating activity is costly. You pay various frictional costs and trigger taxable events, which reduces the funds you have invested to compound your wealth.
This article covers how to stop paying attention to your stocks. You can skip to any particular section of the article using the table of contents below.
Table of Contents
- Step #1: Delete Investing Apps Off Of Your Smartphone
- Step #2: Realize One Day Doesn’t Matter
- Step #3: Listen to Warren Buffett
- Step #4: At Max, Check Quarterly
- Step #5: Spend Your Time Wisely
Step #1: Delete Investing Apps Off Of Your Smartphone
We live in a world where humans are acclimatized to having instant access to information. In investing, this can be dangerous.
We become used to having on-demand information. In investing, this means that many investors (particularly younger ones) will have smartphone applications from their stockbrokers (and other financial information providers). This is not a good thing.
Having an investing app on your smartphone tempts you to constantly check stock prices. This can lead to selling stocks just because their prices have moved downwards – which is one of the most common mistakes that investors make.
Because of this, we recommend deleting most investing-related applications immediately and permanently. Notice that this says “most.” Indeed, not all investing applications are bad.
Some applications, like Seeking Alpha’s mobile app, provides investors with high-quality fundamental research and relevant financial ratios and metrics. These apps provide information about how the business is doing, not just about its stock price performance. Accordingly, an app like Seeking Alpha merits keeping as it provides interesting reading materials for stockholders when they don’t necessarily have access to paper resources or a larger desktop computer.
At the other end of the spectrum is the applications provided by your stockbrokers. These are the worst apps you can have on your smartphone and you need to delete them now. These applications allow you to do two dangerous things:
- Constantly check the value of your individual holdings and your portfolio as a whole
- Execute trades on-the-fly as knee-jerk reactions to price volatility
Many other apps lie somewhere between the Seeking Alpha app and brokerage apps in terms of their usefulness. In general, though, we recommend having as few investing-related applications as possible because it simplifies life and allows you to avoid many of the transaction-related mistakes that investors are prone to.
Step #2: Realize One Day Doesn’t Matter
There are 252 trading days in every calendar year. That is a tremendous number of trading days.
At the same time, the stock market is volatile. Every trading day, stock prices may go up, they may go down, or they may remain relatively stable.
Most days, these short-term price fluctuations don’t have anything to do with the value of the underlying business you are invested in. As an example, does a slight increase in fear about a Chinese economic collapse really have any bearing on the long-term growth potential of Wal-Mart (WMT)?
Probably not. Wal-Mart is a Dividend Aristocrat and has increased its annual dividend payment for decades on end. It is highly likely that the company will continue to be a growing and profitable business for the decades to come, even if its day-to-day stock price fluctuations may suggest otherwise.
Generalize this concept to the average stock in your portfolio. If every breaking news story on the heavily sways your investment thesis’ on your portfolio holdings, then holding individual stocks isn’t for you (and that is ok). There is nothing wrong with being psychologically unsuited for investing in common stocks as long as you know that this is the case.
Even if the companies you own have changed in some way that makes you doubt their long-term viability, the particular day that you sell on doesn’t really matter. If the bad news comes out today, selling today might not be the best idea because the stock market’s initial reaction to bad news is often overdone. A better time to sell might be in a few months’ time when the dust clears and the markets begin to realize that the company still has a future (although a different one than before).
An example of this occurred recently with W.W. Grainger (GWW), a distribution company in the maintenance, repair, and operations (MRO) industry. The markets became overly pessimistic on the company’s future in a world dominated by Amazon (W.W. Grainger does derive much of its earnings from online sales) and the company’s stock price dropped from about $250 to $155.
Investors that were constantly checking their stock prices may have been scared into selling this stock, locking in their losses in the meanwhile. On the other hand, investors who rarely check their stock prices and who focus more on business results would have either (1) waited for the company’s stock price to rebound to more reasonable levels before selling or (2) continued to hold the stock, recognizing that this short-term divergence between stock price and business value meant nothing when it comes to Grainger’s long-term business prospects.
What matters in investing is ultimately the strength and growth of the underlying businesses in which you are invested. In Grainger’s case, the underlying business continued to perform reasonably well and investors eventually realized it had become mispriced. Shares recovered most of their losses in less than a year.
What doesn’t matter is what the stock market thinks the shares of one of your businesses are worth every single day. Often price fluctuations have little or nothing to do with underlying business value, which provides buying opportunities for intelligent investors. .
Step #3: Listen to Warren Buffett
Warren Buffett has amassed a $80 billion fortune from his investing acumen alone. This separates him from other well-known billionaires like Bill Gates, Jeff Bezos, or Mark Zuckerberg, whose wealth was generated through fast-growing technology startups.
Indeed, Buffett is by far the richest investor in the world. Interesting, Warren Buffett’s stock portfolio is full of high-quality dividend growth stocks despite his well-known reputation as a value investor.
Warren Buffett is an advocate of long-term investing. Warren Buffett is the opposite of a day trader, as the quote below shows:
“I buy on the assumption that they could close the market the next day and not reopen it for 5 years” – Warren Buffett
This is not Warren Buffett’s only quote advocating buy-and-hold investing. Several of Warren Buffett’s other quotes on holding for long periods of time are shown below:
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
“Benign neglect, bordering on sloth, remains the hallmark of our investment process.”
Warren Buffett is very clear on his investment period. He is looking for businesses (or publicly-traded common stocks for us non-billionaires) he can buy and hold indefinitely. Investors who are tempted to constantly check their stocks would do well to remember Buffett’s advice.
Step #4: At Max, Check Quarterly
All publicly traded businesses release quarterly earnings reports. These come in the form of press releases as well as more detailed filings (called 10-Qs) stored with the United States Securities & Exchange Commission.
These reports give you an update on how the business is doing. Their quarterly frequency allows them to succinctly summarized all pertinent activities since its last report, since businesses typically don’t go through mammoth changes every 3 months.
The maximum you should check into a business – and I mean the actual business, not the stock price – is once a quarter. Quarterly reports are probably still too frequent a period to check for a long-term investor, but they do provide valuable insight into the direction a business is going.
When checking quarterly reports, don’t become overly pessimistic (optimistic) from one-quarter of poor (better-than-expected) results.
We’ve all had bad quarters in our personal lives. It doesn’t mean we are doomed to go down a linear path of decline every quarter thereafter.
Likewise, if we have a really good quarter personally – say get a new promotion or exercise much more than average, it doesn’t mean this will happen every single quarter indefinitely… Although getting a promotion every quarter sure does sound nice. In a decade, that’s 40 promotions!
People in general, and in my experience especially those in the finance and investing profession have a tendency to extrapolate recent results into the distant future, myself included.
Don’t fall for this bias. Instead, look at quarterly (or annual) reports to get a snapshot of where the business is. You should look to make sure it is not in any serious danger. Big warning signs are high debt coupled with negative cash flows or a cut in the company’s dividend. These are things that should be taken seriously. They don’t happen frequently to high-quality businesses.
The bottom line is this: a business’ results should be evaluated quarterly (or less). Any time spent checking into the business more frequently than this is more focused on its stock price rather than its business performance. Over time, these trends will converge, making business performance far more important in the long run.
We’ll close this section with the following quote:
“In the short run, the stock market is a voting machine but in the long run, it is a weighing machine.” – Benjamin Graham
Step #5: Spend Your Time Wisely
We are all guilty (everyone I’ve ever known, at least) of spending time less than optimally. Daily checking of stock prices is a waste of time.
Time is money. The more we waste, the less valuable our lives become. There is no real joy to be gained from checking stock prices. In my experience, it only causes unnecessary worry and anxiety.
Your time is better spent on almost anything else, other than stock prices. You will notice that the financial media is constantly discussing stock prices and reporting on the daily fluctuations of businesses.
This is because it makes much better news than headlines like “Nothing changed today at Coca-Cola”, and “business as usual at Johnson & Johnson.” Those are headlines I do not want to hear about… Frankly, they are boring.
In investing, boring is good. Boring means there is no crisis, no unexpected surprises, only continued profits.
Boring stocks often receive less attention from investors, which creates more compelling buying opportunities in the stock market. As the following quote from Peter Lynch illustrates nicely, the less attention a stock receives, the better.
“Better than boring alone is a stock that’s boring and disgusting at the same time. Something that makes people shrug, retch, or turn away in disgust is ideal.” – Peter Lynch
Focus your time on things that matter, not on what other people think the business investments you have are worth. In the long run, you’ll be far better off by spending the time you would be spending on looking at stock prices on more important tasks – like earnings more active income, spending time with your family, or starting new positive habits.
Final Thoughts
Barbara & Odean have proven that individual investors who trade frequently underperform. Don’t let that be you.
Focus your time on what matters to you. The daily fluctuations of stock prices do not matter. There are so many things that are so much more important. Checking stock prices too often will only result in a greater desire to trade, which results in lower returns over time, all other things being equal.
We believe that checking your stocks less frequently is an actionable way to improve the performance of your investment portfolio. We believe that two other easy-to-implement changes are investing for the long term and minimizing your investing fees.
If you’re interested in learning more about either of these strategies, the following Sure Dividend articles will prove useful:
- The Long-Term Investing Guide To Compounding Wealth
- Wall Street Doesn’t Want You To Know About Investing Fees
Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
Article by Sure Dividend
The world's best investors have trounced the market decade-after-decade. The course Invest Like The Best uses actionable cases studies from investors like Warren Buffett, Peter Lynch, Seth Klarman (and more) to teach you the tools and techniques of super investors. Click here to enroll today and save $100.
