The Perks of Distraction-Free Investing

In the past, gathering accurate information presented one of the biggest challenges to investors. With all the advances in information technology, from satellite communication to the Internet, investors face a new challenge: filtering out all of the worthless information out there to discover the best stocks you can find.

During a five-hour flight the other day, I realized just how difficult it is to isolate yourself from the constant bombardment of data and information that's available at the tip of your fingers. Only by deliberately keeping yourself away from that information flow can you shut out all the noise and give yourself a chance to make sense of it all.

Worthless information
Consider an example: stock quotes. Before the Internet, the vast majority of average investors relied on daily quotes from newspapers for price information. Later, news services provided intraday quotes on a delayed basis. Now, it's easy to find real-time quotes -- most brokers offer them to customers at no additional cost.

The question, though, is how much good having up-to-the-second information does you. While streaming quotes may seem valuable when you're trying to buy or sell a stock, in the long run, it distracts you from the true fundamentals of investing.

Ask the Oracle
Warren Buffett once said that he would be perfectly happy if the stock market were to close for years. He saw the daily ups and downs of the market as unimportant in comparison to the fundamental selling and earning power of the companies he chose to invest in. He doesn't hesitate to take advantage of market volatility when it serves him -- as he has recently with new investments in Nalco and in adding to positions in Burlington Northern Santa Fe (NYSE:BNI) and NRG Energy (NYSE:NRG). But obsessing over penny movements in the shares he owns isn't his style.

Nor should it be yours. Watching the market too closely can be outright dangerous.

Psyching yourself out
The trap many investors fall into is to look to the stock market for validation of your investment ideas. Even if investors do all the right things in analyzing and selecting stocks with great potential, they ruin it all by looking too closely at what share prices do in the days and weeks after they buy. If prices go up, then they feel good -- but if the shares fall, then they start to question whether a mistake was made in their selection process.

Unfortunately, you don't have to dig very deep to uncover dozens of examples where a short-term drop in a stock was followed by a huge move up. For instance, take a look at how you might have done bottom-fishing in the market drop last fall:

Source: Capital IQ, a division of Standard and Poor's.

If you lost your nerve and sold after the market moved against you, the money you lost only added insult to the injury of missing out on all those future gains.

Have confidence
If having too much information causes you to make more mistakes than you would without it, then by all means, get rid of your worthless data. Stop checking up on your stocks several times a day, and instead, treat yourself as though you were locked into your stocks for a year or more.

Of course, you may miss out on some information that way that you'd actually find valuable. But you'll probably find that the value of distraction-free investing far outweighs the few instances where you might have wanted to act on some critical news item immediately.

The increase in available information has transformed the world, but you don't have to let it transform your investing. Stick to smart strategies that work well for you, and tune out what you don't need.

For more on smart investing, read about:

• Are these three stocks on Buffett's list?
• Will 7% returns be enough for you?
• Stocks that are giving you a raise.