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I love the internet – it brings the world into my office and equally gives me the ability to take my views to the world. It enables instant communication and gives us access to more data than we could ever use. But that last point may be as much a problem as a benefit.
One of the sectors that has benefitted the most from the internet over the past two decades has been finance. We no longer need to visit bank branches as we transact online, while anyone with some spare cash to invest can now buy and sell shares on local and global exchanges.
Way back in the day when I opened my first brokerage account in 1987, you had to phone the broker to issue a buy or sell order and they’d then relay the order to the trading floor. It was a slow and cumbersome process, and you were never sure if the order would be filled or at what price.
Now we have live prices and can execute orders in real time. But this has a downside, especially for the investor. When I bought my first shares I would check the newspaper every day for the previous day’s closing prices, but these days I can monitor the share prices trade by trade.
For a long-term investor, however, this has zero upside. You bought the share for the long term, why the need to repeatedly check the price during the day? Sure, we love the rush when the price is moving higher but that also brings the pain of a down day, and neither matters to the long-term investor.
My rule is simple: I need to check the prices of my long-term investments at the end of every month. Just a cursory check to see how they’re doing.
Aside from the fact that I am online most of the day and my broker’s live price platform is streaming away, I have my long-term investments on a separate tab and I very seldom check them out unless there is news. But even checking prices when news breaks is wrong – rather focus on the actual news.
The point is that you bought a great company and plan to hold it for years, decades. What the price is doing today doesn’t matter. What does matter is how the business is doing. You bought this great investment because you believed the company would solidly grow profits over the years; daily price movements in no way reflect what is going to happen to profits over the long term.
The risk of consistently watching the prices is that when we see extreme price movement, we panic and sell or buy without due consideration as to whether this is part of the plan. Even if we don’t buy or sell, we stress over the price.
I trust my long-term shares to beat the market over the long term and set alerts for Sens announcements for all the stocks in my long-term portfolio. When news breaks, I read the Sens, making sure the company is still on track and awesome. I also, as mentioned, check the price monthly and have a detailed spreadsheet that computes my preferred buying prices for the stocks I own. If a share is approaching my buying prices, I’ll receive an SMS alert from my online broker (which I set up earlier) and I will then decide whether I want to put some bids in the market to buy more.
Keep it simple: Know why you own the stock and know at what price you want to buy and ignore the noise of daily price movements.
This article originally appeared in the 9 March edition of finweek. Buy and download the magazine here.
