Your Stock Price Doesn’t Matter

I have a bad habit of looking up our individual stock’s values every few days.  I know it doesn’t really matter, but it’s a habit that is a bit hard to break after being in my buying mode for most of last year.  What is somewhat really stupid about the habit is I know barring a major shift in the companies I own I won’t be selling any of their stocks for possibly decades.  I just enjoy my dividend cheques too much.

So we end up with these odd events like BMO, which we both own, having a good quarter and their stock climbing up almost $10 from where we last bought some.  It looks good on the net worth statements, but it doesn’t do anything for us.  The price doesn’t matter when we have no plans to sell.

So I’m in a spiral of knowing the price  and having it help our net worth statements, but having no intention of selling so I wonder why I look.  I suspect that habit know comes from being a little over concerned with stock prices falling the huge drop in 2008.  I keep watching for a potential double dip in our recover since I can’t shake the feeling that it all seems to be going too well.

The reality is I don’t need to look except for every two months to prepare my net worth statement. If the world really goes to hell for the market I strongly suspect it will be all over the news headlines.  Anything over a couple percent movement on the TSX in a week tends to end up with it’s own headline so I will know to have a look at that point.

Therefore going forward I’m going to try something new and not look at all until the end of the month.  Can I do it?  I don’t know, but it sure will be a fun game to play in the mean time to help me break my habit.

18 thoughts on “Your Stock Price Doesn’t Matter”

  1. You’re right, the stock price doesn’t matter. Maybe you should even take the step of removing your share values from your net worth. Instead, include the total dividend income. If you require a certain level of income before you can retire, or semi-retire, wouldn’t it make more sense to track your progress toward that income level?

    On the other hand, if BMO goes up (reducing the current yield), while another stock goes down (increasing the yield), that might present an opportunity to rebalance and increase your dividend income. So it might still make sense to check the share prices once or twice a week.

  2. “On the other hand, if BMO goes up (reducing the current yield), while another stock goes down (increasing the yield), that might present an opportunity to rebalance and increase your dividend income. So it might still make sense to check the share prices once or twice a week.” — Great point Robert.

    Everyone is looking for a bargain… But if you are going to hold the stock for a decade, the entry point is almost irrelevant.

  3. A few random thoughts on this interesting topic.

    Not selling today is the financial equivalent to buying today….correct?

    We all “time the markets”. Buying today and planning to sell say 30 years from now is still timing the market…correct?

    Why do many investors give so much weight to dividends and ignore capital appreciation? Is that mental framing rationale? What do the numbers look like? For example, what price would BMO have to drop over say 5 years to make their dividend look bad in comparison to other alternatives? There has to be a number…correct?

    Should we be comparing the additional income from a dividend over say a Canada Savings Bond where the capital is guaranteed? Say 5% dividend compared to 2% savings bond? The net is then about 3% before tax.

    The price of the stock is not guaranteed to be higher in the future. Is it rationale to ignore important parts of the historical data? Look at the 1929 bear market (~25 years to recover) and 1966 to 1982 bear market (where the market remained below 1000 for ~16 years). Those who sell the “buy and hold” conveniently ignore these parts of the historical data set as if they are somehow not valid data. A little like Toyoto ignoring their safety problems.

    Our plan should include a plan B if this happens again during our investment lifetime.

    A few quick numbers to get the juices flowing. $50 price and 5% dividend ($2.50 per year). $50/$2.5 = 20 years. Or, $50 paying 2% ($1 per year for 20 years and no price risk).

    It seems that our investments will always be one big crap shoot. One might argue that the stock market is more like a casino than we like to admit. We place our bets and take our chances.

    That reality might explain why we all enjoy frequent checking of how “our bets” are doing.

  4. I’m sure you’re right that looking every day is an unhealthy pastime. But I do it too. I don’t buy individual stocks, only mutual funds, but I am constantly checking and often updating that spreadsheet–but with no action except at the end of the quarter when I re-balance.

    Why do I do it then? I have no idea, but I don’t think I could give it up.

  5. I pay attention to my stocks even though, all things considered, my plan would be to hold them for a significant period. I am conflicted, as I am starting to move away from the old buy and hold mantra. I pay attention to them so I can hopefully avoid being blindsided by a dividend cut, or bad news eating away my capital and income. ie. MFC.

    Adam

  6. @Canadian Money: What is the definition of “recover”? I’ve heard this a lot given the latest crash. If you’re dollar cost averaging then the stock price never needs to get to it’s previous levels, it only needs to rise above the average of the shares that you purchased.

    I admittedly know nothing of how dividends work though, so I’m speaking strictly of stock prices. My eyes glazed over as I read much of your comment, so maybe I’m missing the point.

  7. We all habits, so checking your stock price even if doesn’t really matter you’ll still do it, because it’s a habit. Stepping on the scale every morning is my habit, I know too that I shouldn’t because numbers by themselves don’t matter, especially on a daily basis. Once a week yes. I don’t think this is bad until it doesn’t interfere with your well being.
    If I step on the scale and is 2 pounds lighter I have a good day, if it’s half pound heavier I have a bad start for that day, IF those numbers do make or brake your day then there is a problem. Checking your stock price can be a problem if they put stress on you.

    So just take a look how this habit impact your life and then you’ll know if it’s a problem or not.

  8. I used to do that too. It’s interesting that even when I knew that it doesn’t matter, I would still check the price. I have mutual founds but still I would check the stock price every weekend, not daily but often. I’m thinking to keep my investments for a longer period so at the end will work out. I use the Dollar Cost Average plan and it’s interesting to see how the same amount can buy you different stock numbers with a changing market.

  9. Good post, but I think I have a few things to add:

    1) I agree with Think Dividends. If you’re planning on holding a stock long term, the entry point is almost irrelevant. You certainly don’t want to get hosed by buying at an inflated price, but ultimately if you’re holding the stock long enough, it should be valued much higher at your end point.

    2)Try just looking at your stock price when you want to calculate your net worth statement. It might even be a fun surprise each month, because you’ll be relatively clueless as to which direction and by how much your stock value changed.

    Great post, keep them coming.

  10. My investing consists mainly of a basket of various index funds… and I watch the stock ticker on BNN with a glazed look on my face. Can’t help it.

  11. I feel the same in a lot of ways when it comes to my stocks. For me, it tends to be more of a bi-weekly basis that I review actual market values.

    There’s always that possibility that something is going inherently wrong for a company, but for the most part, I could deal with not looking at any of my portfolio’s stock values for months on end. As long as that divvy gets parked in my account, I’m normally a happy camper!

    I hear you on the BMO example I just got their 192nd annual report in the mail the other day. 192nd! Do you think I’m gonna dwell on the value of it’s stock and wonder if its going to go down or up a $1 in the next few weeks?

    To answer your question – you should be able to do it if you’re comfortable with your stocks.

    Great thread. Keep up the good work.

  12. @ Learn Save Invest I’ve missed out on so many great investments over the years simply by using limit orders… It hurts to see a stock making new highs when you missed out by a few cents… (I’m less reliant on limit orders these days)

  13. Financial Student

    Your question is an excellent one. Sorry about the half thought out comments.

    I was referring to the length of time it would take for a sum that was broadly invested in the stock market to recover back up to the previous market peak. 1929 was a worse case scenario. A $1000 value at the peak in 1929 took about 25 years to get back to that level (ignoring dividends). Sometimes bear markets go deep and recover quickly like in 1987, at other times they can drag on for many years.

    We are not guaranteed to receive dividends or to see the same or higher price at points well into the future for any particular stock. BMO appears to be one of best stocks but never say never.

    There is market risk…what the averages do and there is individual stock risk.

    The main averages have always recovered in part because “bad stocks” are culled on a regular basis and replaced by the latest fad stocks.

    The stock culling and replacement activity makes the stock market indexes look less risky than they really are. In other words…the market indexes are not “good science”. The bad data is removed from the experiment.

    Individual stocks have the risk of never ever recovering after a severe downturn….Enron etc.

    I would be interested in reading more about Dollar Cost Averaging and how one might do going through a long bear market period. Could you do a post with some numbers based on actual market history, perhaps on your blog??

    Seems to me…if we assume that individual stocks will always recover we are either uninformed or not being honest with ourselves.

    For example, how would dollar cost averaging have worked for the dot.com stocks, say if one began investing in 1985 or 1998? Another question I have is would someone who had began DCA in the Nasdaq in 1985 or 1998 have maintained that discipline throughout the bear?

    What works on paper does not always pan out when the rubber hits the road.

    Having said all that…I think DCA may well be the best “theoretical approach” to “timing the market” if it is done on a broad market index basis. I would really like to see some scenarios.

    I had the luck to have seen my co-workers go nuts over the market through the peak (2000) back then and watched them “go silent” as the market crashed. That was as interesting to watch as any movie I have seen.

    Nadaq history at
    http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=nasdaq&sid=0&o_symb=nasdaq&freq=2&time=20

  14. @Canadian Money: I have to admit the theory always sounded so good to me I never examined the practise. It will take some time to research, but I think it’s worth the challenge. I’ll let you know what I come up with.

    I’d say up front though, that you’d need to diversify too. Like you said DCA on Enron wouldn’t have helped. I like to gamble and I would consider an individual stock just that, a gamble, not an investment. I use two different strategies for the two things and I can afford to lose my gambling money, but not my investments.

  15. “Be fearful when other are greedy and greedy when others are fearful”

    Because I’m a net purchaser, and will be for some time, I get disappointed when my stocks rise in value.

    If we can think logically about investing (not an easy thing to do) and remove our hearts from the equations, I think it makes things a whole lot easier. I loved the market crash we had last year. Yet–it frustrated me too, because it didn’t last long enough. So, because I was frustrated, I can’t claim to be an investment Buddha either.

    Andrew Hallam

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