Most investors understand that long-term investing is the key to building wealth. It’s no secret that the goal is to buy high-quality companies, hold them for years, reinvest their dividends, and let the power of compounding go to work.
However, while many investors understand the importance of long-term investing, the part that’s difficult is keeping your emotions in check.
Because even if you say you’re a long-term investor, if you’re checking your portfolio every single day, sometimes multiple times a day, you’re not really operating with a long-term mindset in that moment. You’re reacting to short-term price movements, even if you tell yourself you’re not.
And that’s where things can start to mess with your emotions.
Source: Getty Images
Why checking your portfolio too often can be detrimental
When you see green, it can feel positive and reaffirming, like you made the right decision. However, when your stocks are down, and you see red, even if it’s just down a few percent and for no real reason, it can start to create doubt. You might even start wondering if you missed something, or if you should have waited to invest or if you should try and “do something.”
However, in nearly all cases, especially in the near term, nothing actually changed about the business from when you decided to buy.
Stocks can move by several percent in a day, and absolutely nothing about their long-term earnings power has changed. That’s not uncommon in the market. However, when you get in the habit of checking stock prices daily, you can start to attach emotion to that movement.
And sometimes that emotion doesn’t always show immediately. You might not actually panic sell when the stock drops 5%. But that drop can still sit in the back of your mind and create doubt.
So, when the stock eventually recovers and turns positive again, instead of staying disciplined, you might sell just to “lock in” the profit out of fear of losing that gain. Because for most investors, the fear of loss is often stronger than the excitement of more potential upside.
The weird part is that most of us know this. We know daily volatility doesn’t matter if we’re investing for the long haul.
So why do we constantly check our portfolios every day?
Even though most investors know it’s essential to invest for the long haul, many can’t help checking their portfolios daily because money is an emotional topic.
We all work hard for our money, so when we see it fluctuate in value, it can feel personal. So, although it’s understandable and quite common to feel this way, it’s still something we all need to manage.
The key for investors to remember is that if you ensure you’re buying high-quality stocks that you understand and have real conviction in, whether that’s a defensive dividend stock like Fortis or a long-term growth stock like Dollarama, the thesis shouldn’t change because the price dipped for a week or even a month.
That’s the point of long-term investing. It mitigates short-term volatility, so you don’t need to be right every day; you only need to be right over the long term.
But when you check daily, you start judging success by today’s price instead of by whether the business is executing, and that’s the biggest trap.
Think about it this way: if you owned a small business, you’re not worrying about the value of your company every day. You want to know whether revenues are growing? Are margins stable? Is management allocating capital properly?
Those are the things that will have the greatest impact on the stock’s value over the long haul. The share price at 10:37 a.m. on a random Tuesday doesn’t.
Often, the investors who tend to build the most wealth are usually the ones who do the least. They do the research upfront and buy strong companies, then they hold them with confidence, refusing to let daily market movements influence their long-term conviction in those businesses.
That doesn’t mean ignoring your portfolio forever. It means understanding the difference between monitoring your business’s operations and obsessing over its daily share price.
Long-term investing is simple in theory. The hard part is managing yourself. So the next time you catch yourself checking your portfolio, ask yourself whether anything has actually changed.
