Posted by Robert on December 12, 2011
This is a guest post by Robert, who lives in Calgary and
works as a financial advisor retired at 34. He is married, has three kids. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
When I first started trading stocks, with no knowledge or training, I was mesmerized by the market. I would sometimes watch the real time feed for hours, watching prices move up and down, jump from price to price and reverse direction. It was all mysterious, and I still don’t feel like I can adequately explain why stocks move as they do.
I do know, however, that I don’t need to “supervise” my investments for them to perform. In fact, they’ll move up (or down) whether I watch them or not. That doesn’t mean they should be ignored totally. When I worked as a financial advisor, the worst clients were the ones who repeatedly refused to return phone calls. Their accounts didn’t perform, they didn’t follow our advice for improvement, and they inevitably complained that they were disappointed with their returns. So how often should I check in on my investments?
I used to go into work every weekday. Working at the office is what produced the income that funded my paycheque. Now my monthly income comes from my investment portfolio. Maybe it’s force of habit that pushes me to check the market, and my stocks, daily. Each day I glance (just once) at whether the market is up or down, and whether my stocks have moved in the same direction. I’ve found, by doing this, that my holdings tend to move the day or two after the market, and some move more than others. Knowing this helps me when it comes time to buy or sell.
Now, I review the stock market performance each week. I talk about 30 minutes or an hour to review the performance of the market in general and the movement of each holding over the prior week. I also look to see if any news has come out that has an effect on the fortunes of my companies. But none of this, barring exceptional news, normally leads to a trade.
Each company produces a quarterly financial statement and holds a quarterly conference call. I read through the financial statements, especially the results of the prior quarter and the outlook for the future (which I take with a large grain of salt). It’s helpful to hear from the managers who are, after all, running the company on my behalf (not that my holdings are large enough to warrant personal attention). I also usually appreciate the questions from analysts, since they ask better questions than I could come up with.
During a volatile period in the markets, like the last few months, my net worth can fluctuate by $10,000 or more on a particularly bad (or good) day. Generally, it will reverse over the following couple days, so I don’t get too worked up. Trading is expensive, in transaction costs and in the potential for error, so my goal is to trade no more than 10 to 20 times per year. Watching my stocks too closely would not only be a waste of time, but would likely result in more trading than necessary.
If you own stocks, how closely do you watch their movements? How frequently do you trade? Why does that work well for you?