Remove The Psychology From Investing

Tue Sep 25, 2007 6:26:24 am by Dustin
Filed under Finance, General, Tools and Tricks, a little about life

At work, I get my news from a fancy tool called iGoogle. This lets me add widgety items like news headlines to my personalized Google homepage. This is also my homepage in Internet Explorer on the three computers I use regularly: work, home – laptop, and home – desktop.

I had a problem with this though. I had a widget on there for stock quotes: things I owned and some watch list items. My project at work is basically a custom website, forcing my to open and close IE frequently all day. This made me constantly aware of the price which my favorite companies were trading at.

This became worrisome over the last few weeks as prices were falling quite quickly. As a long term investor who does not time markets all this can do is make you think and think about how far they will go down. You begin to second guess your choice in these companies. Your next step is to sell, but, wait, you remind yourself you are in for the long haul.

So what did I do? Well I removed the widget, duh, allowing myself to forget the worry and move on. There is a bigger picture here than me staring at some red and green numbers instead of doing my work. Market timing, psychology/worry, and short term investing can kill not only the average investor but even those who actively manage their investments, portfolio, or fund. To avoid such murder of the mind, don’t track your portfolio on a daily basis. Weekly could be pushing it too. Your long term goals should include holding some company for many many years – 5-10 should be a low number. Knowing the stock price on a daily or weekly basis can either make you big headed or conclude you are stupid for choosing such trash.

If it is trash, the price is not going to decide this for you anyway. The numbers and news will.

How do you feel about this? Chime in time.

  1. Jeff

    I agree with your move to remove the widget from iGoogle. Watching your investments all day long when you are holding for the long term is overkill.

    It turns out that Warren Buffet doesn’t even watch the stop market prices that closely. He does not have a computer on his desk to watch the prices of various equities. He does not even read the newspaper to see the previous day’s closing prices. For him, it is all about value not current price.

  2. budgetchief

    I generally hold a portfolio of about 10 or so stocks. I own companies that I intend to hold onto for 5 to 10 year timeframes. I also work at a computer all day and generally have the yahoo watchlist up and running. I watch my stocks and a few others that I’ve researched and would buy when I have money come along and the prices are right. Even inside a 10 stock portfolio it is interesting to see the wild swings that can occur on an individual stock. I often add money to stocks that I already hold when I see one that is “on the ropes”. I’m not day trading, I just consider it buying things on sale. If I wasn’t watching it each day I wouldn’t be able to take advantage of these dips. Every once in a while a stock will have a crazy day where it goes up (like last week when the fed dropped rates) and I will take some money off the table (and generally be able to buy back in later at a cheaper price). Most of the time I don’t sell anything unless I’m exiting the position completely. It doesn’t really take any time (unless something is actually moving). I’m generally using knowledge I already have about investments I already am very familiar with, to profit. I don’t really think it is overkill, it is just work. I also enjoy it so instead of taking a smoke break I take my stock break! It also pays better than spending my time on fantasy football!?!?!

    Note: I only do this with a certain percentage of my portfolio. The investments that I keep in my IRA and 401k are invested in index funds. I automatically contribute to these regardless of what the market is doing.