Here’s 1 Thing about Investing You Might Really Want to Stop Doing

There’s something in common that nearly all investors have – the habit of checking their portfolios on a daily basis. While it might seem innocuous to just have a quick look at how our stocks are doing every day, this could potentially be a really harmful thing to our investing results.

In his book Thinking, Fast and Slow, which describes many of the psychological and behavioural quirks that we humans tend to display, Nobel Prize winner Daniel Kahneman writes:

“Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes.”

One of the reasons why this phenomenon exists is that we humans often hate losses more than we love gains. In other words, a dollar lost gives us more grief than the satisfaction we receive from a dollar gained. And as Kahneman says, if we’re bombarded by losses all the time, it’s easy to fall prey to our emotions and subsequently make sub-par investing decisions.

This is a very important point to note because even outstanding long-term winners in Singapore’s stock market – shares which deliver returns for investors that are multiples of their initial investments – are not immune from spending a large chunk of time in the red.

To that point, we can take a look at the experience of shares like Raffles Medical Group Ltd (SGX: R01), Straco Corporation Ltd (SGX: S85), Vicom Limited (SGX: V01), and Jardine Cycle & Carriage Ltd (SGX: C07). The quartet have achieved returns of 956%, 567%, 556%, and 227%, respectively, since the start of 2005; those are gains which have roundly trounced the 62% increase in price delivered by Singapore’s market barometer, the Straits Times Index (SGX: ^STI), over the same period.

Yet, from the start of 2005 to today, we can see that the number of days in which the four shares had clocked losses had been nearly equal to (sometimes even more than) the number of days in which they had enjoyed gains:

Raffles Medical, Straco, Vicom, Jardine C&C trading days

Source: S&P Capital IQ; author’s calculations

Raffles Medical, Straco, Vicom, and Jardine C&C’s long-term returns did not appear without rhyme or reason – they came about because the quartet’s businesses had grown strongly over the years (see table below). Great companies often see their share prices lose sight of the trajectory of their business results over the short-term, but over the long-term, the two do converge. And, this highlights where our attention should be focused on as investors: The long-term business results of the companies we own.

Raffles Medical, Straco, Vicom, Jardine C&C profit growth

Source: S&P Capital IQ

So, like Kahneman says, we might really want to avoid focusing on the daily share price movements of our investments. Instead, find great businesses, buy them with the intention to hold for the long-term, and check back in on both the business and the price every quarter or so to ensure that the thesis is still going strong.

Due to my job as a finance writer with the Motley Fool Singapore, I have to keep abreast of what’s going on in the market, often on a daily basis. But if I had the luxury of not checking what my shares are doing each day, I would – in the process, I can potentially save myself quite a bit of heartache.

So, do yourself and your portfolio a favour – consider the idea of not checking your investments every day.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group, Straco Corporation, and Vicom.