The American spirit fosters competition. We constantly measure ourselves against our peers and gloat about our accomplishments. Every day, investors point to their stock positions that jumped into the green and feel a sense of accomplishment.
In the investing community, the presence of daily stock prices has resulted in investors either feeling warm and fuzzy because their holding increased during the trading day or sick and nauseous if their daily position ticked into the red. When even great ones like Warren Buffett scoff at the idea of constantly checking daily quotes, why do investors continuously feel the urge to pull up their brokerage account or flip on CNBC? The answer can be chalked up to human nature and a lack of patience.
One of the most heavily traded stocks is Bank of America (BAC +0.81%). Almost every investor has an opinion about the future prospects of the megabank, and the company’s stock price is constantly thrust onto front pages. After hordes of retail investors swore off the bank and vowed to never get burned again, the stock went on to more than double in 2012. An annual return of +100% is not something every investor experiences. By looking beyond the absolute annual return and into the daily movements, an interesting pattern emerges.
If one was to check Bank of America’s share price every single trading day of 2012 and not look at the YTD returns, I doubt many, if any, would predict gains of over 100%. The following graph is the breakdown of B of A’s stock performance each day of 2012:
Source: Google Finance.
The fact that Bank of America shares doubled in a year and still traded lower for almost half of the daily trading sessions highlights the lack of importance of obsessively tracking one’s daily positions. More so, not all of the daily declines were insignificant as Bank of America shares declined more than 1% during almost 28% of the trading days in 2012.
Stocks, particularly bank stocks, will undoubtedly jump up and down as external events impact the broader market, earnings miss forecasts, and fear or greed enters the marketplace. If investors continually focus on the market’s short-term reactions to macro events or brief doubts about a company, countless opportunities will surely be missed. I am not advocating ignorance in regards to managing a portfolio, but if one is too shortsighted to recognize the lack of importance of daily movements, perhaps that person is better off handing his or her money to someone who can.
