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Be Rich by Ignoring the Market

In the hustle and bustle of the investing world, it’s easy to lose perspective on the big picture. But even though it runs counter to everything that advancing technology and information at your fingertips provides, there’s a simple way you can get back to basics. Instead of obsessing over your portfolio every minute of the day, turn off the stock tracker and start checking your stocks’ prices only every once in a while.

Disconnecting from distraction
In this day of smartphones and computers, that is easier said than done. There’s something hypnotic about watching stock prices rock gently back and forth during the trading day, occasionally soaring way up high or make stomach-churning free falls.

The biggest threat to investing success, however, is emotion. When you’re constantly looking at how stock prices move, it’s easy to jump to emotional conclusions. When a stock drops $1 for no apparent reason, you might feel like someone knows something bad is coming, and want to sell. When a stock jumps suddenly, you’ll feel tempted to buy, sure that you’re about to miss the boat on a big bull run. But when the heat of the moment passes and you can think about the stock rationally, you realize just how ridiculous those emotions can be.

In fact, some of the world’s greatest investors have taken the view that day-to-day fluctuations mean absolutely nothing. Warren Buffett, for instance, has argued that you should buy stocks that you’d be comfortable holding if the stock market were closed for five years after you bought them. Similarly, here at The Motley Fool Singapore, we also agree that any money you need in the next five years should not belong in the stock market.

Get a smoother ride
Tuning out unnecessary noise helps you focus on the fundamentals of the investments you make. That can prevent some unfortunate mistakes.

Here’s an example: Say you only looked at price of one of the shares in your portfolio on a single day of the year, 1 March 2013. You’d be quite happy to find that the price has tripled since you bought it in 2007. However, if you had checked the price of this share in 2009, you might feel faint since it would have lost about 35% of its value.

That stock is Jardine Matheson (SGX: J36), and while the share has not seen ups and downs like some technology shares (think Apple in the US), an emotional investor might have lost his/her nerve and sold off the shares to “cut losses” when the market came crashing.

Stay awake
That’s not to say that you should ignore everything about the stocks you own. It’s essential to keep up to date about the fundamentals behind the businesses. You can do this by regularly monitoring financial results and paying attention to news items that could have an impact on a company’s core business.

What staying in the dark about share price does is force you to make your own assessments about changes in the condition of the companies whose shares you own. Based on recent allegations by Muddy Waters, Olam (SGX:O32) might make some investors worried about its business. On the other hand, other investors see this as an opportunity to buy into a business as they conclude that the support of Temasek Holdings would be a strong indicator. Regardless of which camp you fall into, it is important to make your own assessment of the business fundamentals.

Find the sweet spot
Worrying and fretting while doing nothing about it is never the right move, especially when things are going badly. Having the right information to make an informed decision is critical. The question, though, is this: When do you have so much information that it stops adding value to your decision-making process? If you figure out what information has real value to you and tune out the rest, you’ll find yourself much more focused on finding the best stocks for your portfolio.

If you would like relevant and up-to-date information about what’s happening in today’s markets, and learn how to GROW your wealth in the years ahead, click here now for your FREE subscription to Take Stock Singapore.  Take Stock Singapore  is The Motley Fool’s free investing newsletter written by David Kuo.

 The Motley Fool’s purpose is to help the world invest, better. The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool’s Joanna Sng does not own any shares in any company mentioned.