Monday, June 11, 2007

The Enemy Within

Despite my best intentions I find my mind wondering at times if I should be doing something different with my investments. Perhaps it is the engineer in me that constantly wants to improve things or perhaps it is all the personal finance blogs and books I read that give me ideas.

Regardless of the source one of the single biggest enemies to your portfolio doing well is yourself. If investing was completely a numbers game it would be easy to do, but instead we have a market place where real people react to things with their emotions and that drives all the dips and peaks in the market on the day to day basis. Over the longer term there is a certain reward for companies that do well as value investors deem them worthy of their price.

So how do you keep on track and not fall victim to changing your investment plan constantly? You have two main options for defense: ignorance and keeping yourself busy.

Creating a selective ignorance around the financial market is actually a very good idea. You don't really need to know everything that each company you own is doing every second of every day. So if you can limit yourself to checking out news only once a week you will find yourself with more time to do other things and you will sleep better not knowing every little thing about the market that just happened. Perhaps the only exception to this approach is if you are watching a stock for a specific buying opportunity, otherwise you really don't need to check your portfolio's performance on a daily basis.

The second method of defeating yourself consists of keeping yourself busy with other things. Some people find if they drive that restlessness towards something else it tends to go away. So when your mind if wandering try filing your papers or checking your bank to see if you can lower your fees or even spend some more time with the family.
In the end, you have to be honest with yourself and find what works for you. Each person is a bit different, so if you've got another idea I didn't touch on please share with a comment.

3 comments:

Mr. Cheap said...

Another alternative with the ignornace approach is to put in a limit order at the price you're willing to pay, then forget about it, if the order is filled, great, if it expires, fine. Either way, you don't have to watch the market (just make sure you don't have more orders active then what you want to spend!)

The Financial Blogger said...

I found another way to protect myself from...myself. It is called endurance. I was trading stocks on a daily basis until I lost a big chunk of money. When it happened, I took a step back and look at what I have done. I understood that panic is not my friend and I should look at numbers only. After all, losing money was not the end of the world since I'm young have plenty of time in front of me.Draw yourself a good investment plan and stick to it. It's tough, but the reward is amazing.
FB.

Canadian Dream said...

Mr. Cheap,

Not a bad idea on how to handle an individal stock.

FB,

It takes a while to develop a plan you like. Once your there it is a bit easier to stick with it (at least for me). Yet I still have those flashes of wanting to improve things.

CD