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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 with your investing. 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
As an investing junkie, I don't always find that advice easy to take. There's something hypnotic about watching stock prices rock gently back and forth during the trading day, occasionally getting knocked around in soaring climbs and 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. Buffett's Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) has put that into practice, both by hanging onto long-term holdings like Coca-Cola for years and by insisting on judging performance by book value rather than share price.
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 stock prices on a single day of the year, July 31. You'd find one stock that has gone up without fail every year since 2002, some years making big jumps, others more gentle, but without any losses. You'd also find a business that has come back from the dead, offering products that now become best-sellers from the moment they become available. If you'd bought that stock in 2002, you'd feel quite comfortable with its returns and the health of the business.
That stock is Apple (Nasdaq: AAPL ) , and in reality, its stock has bounced around quite a bit over that eight-year span. The stock lost half its value from July 2008 to January 2009, as more than a few people thought the company's long run of success was coming to an end. But the plunge in the shares was a headfake, one that you never would have had to deal with if you hadn't had to watch stock charts grind ever lower.
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 the stock's reaction to its recent controversies, Goldman Sachs (NYSE: GS ) has clearly made some investors worried about its future prospects, but you might rationally conclude that its long history and reputation for excellence will help it overcome its challenges.
Conversely, Bank of America (NYSE: BAC ) and General Electric (NYSE: GE ) saw their shares largely shrug off disappointing earnings reports in April. But if you thought the companies weren't doing enough to sustain their recovery, you could easily have found reason to sell.
Find the sweet spot
Putting your head in the sand about your investments is never the right move, especially when things are going badly. The question, though, is this: When do you have so much information that it stops adding value to your decisionmaking 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.
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