Daily Stock Prices Are Completely Irrelevant

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

                 -- Warren Buffett

Most investors have heard or seen this quote from the great Warren Buffett, but very few actually listen and heed his advice. The availability of daily stock prices has drastically changed with the introduction of the Internet. What once was available mainly via newspapers has now become an inescapable and always-present reminder of one's flucuating portfolio. 

Investors check stock quotes on everything from their online brokerages account to their jam-packed Twitter feeds. We've reached a point where one almost has to go out of his or her way not to see how their favorite stock or the S&P 500 performed on a certain day.

To truly highlight the insignificance that daily fluctuations have on a long-term holding, let's take a look at the four largest U.S. banks, all of which handily outperformed the broader market in 2012: 

1. Bank of America (NYSE: BAC  ) Bank of America's shares soared a blistering 100% in 2012. Yes, 100%. With that kind of return, the stock must have been up almost every day, right? Wrong. Here's how Bank of America shares end each trading day in 2012:

2. Citigroup (NYSE: C  ) Citigroup's stock price rose almost 40% in 2012, but those who checked the stock price every day and nothing else probably would have thought the stock went essentially nowhere. Here's the daily breakdown:

3. JPMorgan Chase (NYSE: JPM  ) If an investor only read the headlines about JPMorgan in 2012 and checked the daily stock price, he or she probably would have a very skewed view of the stock's performance. The stock returned nearly 26%, almost doubling the return of the S&P 500, despite an embarrassing and highly publicized trading loss in its CIO division. After each closing bell, the stock ended like this:

4. Wells Fargo (NYSE: WFC  ) Different bank, same story. Shares of Wells Fargo also crushed the market and returned more than 20%. You can probably guess how the shares ended each trading session:

You may be thinking -- "Well, that's interesting, but those are just examples of stocks that had great years, I bet underperforming stocks look bad most days." Well, no. One of the most hated and dreadful stocks to own in 2012 was J.C. Penney (NYSE: JCP  ) .

The stock lost almost 44% of its value. However, J.C. Penney shares still traded higher on 44% of trading days! That's only a difference of 13 days when compared to the days B of A traded higher, and that stock doubled! Here's how J.C. Penney's full year played out:

Eye-catching headlines and daily gyrations are fun to follow, but that's about it. If you aim to be a successful, long-term investor, but can't stop yourself from constantly checking your portfolio's minute-by-minute changes, you're probably wasting your time and making yourself sick.

Stock prices sourced from Google Finance


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  • Report this Comment On May 04, 2013, at 8:23 PM, airjackie wrote:

    interesting how the Stock Market is no longer important now that it has made history and Obama is President. Just think as each President set in office the Stock Market was important even when Romney was running we heard he could get the Market recovered because he is a good businessman. Well from 2009-2016 the Market doesn't count unless is crashes. Just think the success isn't because of Obama but the crash would be his fault. The GOP has everyone working to assure Obama is bad and some say he was in charge in 2001-present.

  • Report this Comment On May 04, 2013, at 8:46 PM, DBCOOPER888 wrote:

    airjackie, the article isn't saying the Stock Market isn't important, it's saying that tracking the movement of individual stocks on a day to day basis is a crapshoot and you should instead be focused on a long term strategy and not buy and sell all the time based on day to day fluctuations.

  • Report this Comment On May 04, 2013, at 8:51 PM, mattgrohe wrote:

    The daily price is the only thing that is relevant because that's the only price you can ever or will ever get, the price the day you want to buy or sell. A past price is a memory and a future price does not exist. Also, if you're Warren Buffet you may have enough money that you could lose all your stock holdings and you don't care, because you have other assets, such as means of production in the form of machinery, factories, and real estate. Deciding on how to invest by trying to think five years out is really beyond most people's competence, even the "pros."

  • Report this Comment On May 05, 2013, at 12:02 AM, twosenseworth wrote:

    The only thing to watch for is when Ben Bernanke stops giving the banks $80+ billion a month. Then you can watch with glee as the current stock market bubble not only bursts but causes complete economic chaos.

  • Report this Comment On May 10, 2013, at 1:45 PM, CatchTwentyTwo wrote:

    Twosenseworth, I do agree that equities will drop once quantative easing ends, and then there will be an additional drop in 2016 when interest rates rise, but we know both of these events are going to occur, so be ready. You have about a year until QE is going to end, when unemployment gets to 7.2% then get out (QE is supposed to end at 7% unemployment). And with that said you have to look at why the Fed is setting 2016 as a hard date for interest rates rising, it is to prevent a sudden crash of the equity market.

    Right now, everyone is investing in equities because fixed income is so unattractive. When those funds shift to fixed income in 2016, sure there will be a lowering of equity valuation but that is because demand falls. The good, strong companies though will continue to prosper, and the market will recognize this. Keep the companies you know are good, and sell the fat.

    The market is aware of these events, and the market will factor them in well ahead of time. For now though, enjoy the fun and make some money.

  • Report this Comment On May 10, 2013, at 2:10 PM, Jon0617 wrote:

    I think if you don't believe in the future, you have no business investing. You might as well use your money to have the best possible today, that way you know you got your money's worth. There's no point worrying about bills that don't exist, degenerating health that doesn't exist, kids that aren't going to college, a widow that won't need support when you're gone.

    How much should a dividend or fixed income investor care about the daily price? How much should someone care who isn't buying today, and who plans never to sell unless a major upheaval causes the company to no longer be something he wants to be a part of? Is the value of that information greater than the value of a good night's sleep and a well-rested, rational, deliberate decision later on?

    If you think the daily price is what you're going to get, maybe you should look back to what happened to the DOW on April 23. Forget days, minutes and seconds can wildly influence your buy and sell price if you're going to be day trading. Were the ones who trusted the price for the day thus far, sent sell orders, and landed right in that short, deep valley cheated somehow? What about the ones who saw the nosedive developing and reacted only for it to suddenly reverse itself?

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