Do you still remember the very first time you bought a stock? I still do. The feelings that were contained within me at that moment I use my father’s trading account to execute my virgin trade was, inexpressible. It was a barometer of emotions which includes sheer excitement, enthusiasm, happiness and, of course, a sense of anxiety, fearing that your first investment will end up in the red. Under such a plethora of emotions, I can’t stand the urge to check the stock prices and stock news on Yahoo Finance everyday. I sat in front of my desktop everyday before the market opens, and stare at the movement of the stock charts. My heart was thumping at the same rate of how fast the stock price was changing. I believe I am not the only one here. Any investor will have a similar experience when they first start know how to trade.
However, it’s not a good news if you still carry this habit with you after years of stock-investing experience. There’s a high probability that you are earning significantly less money than your peers in the stock market. Statistics and researches have shown that investors that monitor company news and stock price everyday tend to make 53% less profit than investors who check the company news and stock price once a month. This fact may come as a shock to some of you, as monitoring stock quotes and company news frequently doesn’t seem to be the culprit of your poor investment performance. Hence, I think it’s worth it to delve deep into the cause-and-effect relationship between the two matter discussed above.
First and foremost, please keep in mind that it’s virtually impossible for you to eliminate your emotions when you are focusing on the stock price every moment. In fact, ‘negative emotions’ like anxiety, greed, and fear will spread like wildfire the more frequently you check your stock quotes, and to put it in another way using Buffett’s quote:
“Fear and greed is the foe of the faddist”
When fear and greed is acting on us, they will crush our analytical reasoning skill and rationality. This is because we have already drained most of our brain power and mental energy while worrying about how the stock price is doing every now and then, we are too exhausted to evaluate the attractiveness of an investment properly with deliberate thinking. Consequently, we substitute System 2 thinking with System 1 thinking to make decisions with intuition rather than logical reasoning. That often leads to very, very bad decisions and eventually poor investment record.
Secondo, most of us are prone to take more action than we used to if we constantly check on company news and stock prices, which will trigger the do-something bias. Short term fluctuations in the stock prices should be a noise that you are supposed to ignore, but you can’t stand the itch to do something when you keep on absorbing new information on the company’s feed and share price. Therefore, you start reacting to every small portfolio fluctuations and churn your portfolio regularly, even though most often the best decision is just to do nothing. On one hand, frequent portfolio rotations violates the principles of Occam’s Razor, which by its logic states that less decisions = less errors. On the other hand, the meagre trading cost incurred in every trade will add up to a significant expense that can’t be ignored as it erodes our investment return.
Alas! Many investors still have the misconception that constantly updating themselves with the latest company news is a key step to make better investment decisions. It’s sad when the true fact is that doing so will only drag you down into the ‘information overload’ quagmire. Quoting you an example, let us take a look at the ‘latest news’ of Disney corporation.
It’s not that hard to notice that most of the recent news covered are either analyst opinions (which hardly count as an useful information from the company itself) or unimportant little matter that is irrelevant. Failing to discover how inefficient it is, we would have wasted a large amount of time seeking for low-quality information and reinforces us to think with a short-term lens. Garbage in, garbage out. It’s no wonder that we always make poor decisions when we shape our investment thesis on information and inputs that doesn’t have huge influence over the company’s future position in the long run. Poor investment record turns out to be the perfectly reasonable outcome in this scenario.\
I don’t care how you are going to make it and what way are you going use, just stop checking on company news and stock prices every moment if you ever care about succeeding in investing. I’ve been there and done that, so do many others that I’ve witnessed in my life. It’s insidious, and you may not know why are you failing in the stock market until you came across this short memo. I merely hope my advice and perspective can help you pull yourself out from this dreading habit.
I would like to end this note with an amazing quote which I stumbled upon recently.
“The stock market is a device transferring money from the impatient to the patient” – Warren E Buffett