Like looking at social media, checking on your stocks each trading day is addictive.
However, again, like checking social media, it’s not necessarily good for you. There are a few reasons why your time may be spent on other things rather than monitoring daily stock movements.
It May Encourage You To Trade
First, looking at your stocks more may simple encourage more trading. For example, research has found people tend to trade the stocks that have done the best or worst in their portfolio when they look at them. This may not be a sensible strategy and is a clear reaction to blindly looking at performance. By looking at your portfolio, you will be tempted to trade on a whim. That can increase your costs and, potentially, your taxes too, since often holding stocks for less than a year can increase the tax hit from capital gains.
Also, in a bear market environment looking at your portfolio every day offers only pain without much real benefit That continual reminder of daily losses can make a bear market harder to stomach. That’s a problem because you may end up switching strategy at the wrong point.
Of course, daily losses are tough to bear, but history suggests that sometimes these times of pain can offer more opportunity for investors, and at the very least staying the course in weaker markets is often a robust plan for investors. Now, it matters what your investment strategy is, but for most who aspire to implement more of a buy-and-hold portfolio, knowing the daily changes in stock prices has essentially zero value for that strategy. Plus, on the other hand, if prices are rising every day, that could lead you astray too, causing you to take on more risk in your portfolio than you can really handle should the market shift direction.
It Won’t Give You An Edge
In finance, though the markets are not perfect, it’s unlikely you can gain and edge by doing something countless millions of other investors are doing, namely looking at daily price movements. There is some evidence that medium-term moves in price can be predictive of future stock performance. However, ironically, if you just look at daily price changes you may only see the distracting noise and miss these medium-term signals in longer term data, that could have some signalling value.
As a result maybe there are things that are useful to check to help your portfolio fairly regularly. For example, if you have a taxable account, you could look for tax-loss harvesting opportunities. Perhaps once a month you could examine valuation ratios for major markets, or maybe there’s insight you can glean from reading the financial reports of the companies you are interested in. However, checking stock prices routinely is unlikely to help with any of these approaches and can just be a distraction.
There Are Better Uses Of Your Time
While checking stock prices frequently is common, having a written investment plan is not. Yet a written investment plan can be a key step to reaching your financial goals. With a simple one-page document you can document your investment goals to keep you on track, and to refer to if market conditions or your situation changes. If, for a month, you avoid checking stock prices, you could very easily pull together a useful investment plan with the time you could save. Unlike, randomly glancing at stock prices, an investment plan is more likely to help you on the way to meeting you investment goals.
With improving technology it is now even easier to access up to the minute stock prices, but actually there better uses of your time, and too much exposure to random news may cause you to deviate from an otherwise more effective investing strategies.
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