Most of us love to see our portfolios on a ‘as much as you can’ basis especially in a bull market. We think our portfolio goes up because we click on the mouse and see our portfolio.
Is the market up today? what about oil? gold? Real estate? And ah..Indigo? Sun Pharma? are you that type? Do you see your portfolio more than once or twice a WEEK?
In this day and age of 24/7 connection to financial news – and they telling us that they will provide us the tools for a continuous comparison of the actual with the unintended (!) plan. We are made to feel inadequate if we do not use all the technical tools, the charts, the ratio and other analyses on a continuous basis to ‘analyze’ our portfolios. There is just no evidence that seeing our portfolio 4 times a day improves the IRR of the portfolio. I have not seen evidence, in case you have seen, please share :-). In fact the reverse has been observed in the US. In an article written for the American Association of Individual Investors a few years back, Mark Hulbert noted that, “According to behavioral finance researchers, constantly looking at how your portfolio is performing is not a benign act. It leads you to focus more of your attention on the short term than you would otherwise, leading you in turn to miss the veritable forest for the trees.”
Do an exercise – benchmark your portfolio against a few good publicly available portfolios – aka mutual fund schemes. Say you choose Most Focused 25, Franklin India Prima Plus, Icici Prudential Discovery and 2 other funds of your choice. Every day see whether these funds are up or down. In about 240 trading days see on how many days these funds are up and on how many days these funds are down. It does not matter what happens to your portfolio on a day to day basis. Let me give you an example. You need to travel from Mumbai to Pune and the distance is 180Kms. Your driver tells you it will take 180 minutes to reach there. So you realize that you are going to travel at a speed of 60kms per hour. Will you keep looking at the speedometer continuously? Will you tell the driver ‘average you told me was 60 kmph now you are going at 47 kmph? Or will you tell him on the expressway ‘you said 60…you are now at 90’? Will you get off the vehicle because he is going too fast or because he is going too slow?
It is nice to know what Indigo, Sun pharma, Hdfc Bank, Asian Paints, Colgate, Gillette, Nestle,…are doing on a regular basis BUT that does not come from looking at the quoted price. Maybe you should look at the working, balance sheet, market share – price does not mean anything.
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