Once I’ve made a trade, I always struggle to take my eyes off my stock. I’ve heard stories of traders who have TVs installed on the ceiling of their bedroom so they can check in during the night… That’s certainly not me, yet.
Then there are those that seem to be able to go for prolonged periods of time without even thinking about, let alone actually checking, their stocks. They’d rather be out and about, heading off fishing or going to the beach than constantly monitoring their stocks and they laugh at the idea of waking in the middle of the night to have a quick look.
So who is right? Is there any ‘a watched pan never boils’ kind of theories that go with monitoring stocks or is there no such thing as checking them too often? In the interests of doing the right thing, I have read through the literature so you don’t have to and here is what I have found.
So first we need to talk about what we mean by monitoring. It is one thing to have a quick flick through the stock news (or at your INDX.guru terminal), and quite another to do a deep down analysis. From what I have read online, most people recommend doing the former quite regularly and the latter not quite so regularly.
How regularly is regularly? For most of the traders it would appear catching up with the latest is a good idea at least two to three times a week, and there is nothing wrong with reading the stock prices every day.
ASIC recommend traders “check the price of your shares regularly to help you stay in control. Read the business section in the paper. Keep an eye on the company website and set up watchlists to monitor the performance of shares you hold or are interested in. Set up a free Company Alert with ASIC and we'll email you every time a company lodges information with ASIC, including takeovers, buybacks, floats etc. The Australian Securities Exchange (ASX) also offers a free watchlist feature”.
However, the reality is that checking your stock every day is not really necessary. For most of us that aren’t professional traders, knowing the daily ups and downs of the market is not critical. Day trading just might be a waste of effort considering the costs in terms of time and trading fees, and the net benefit – if any.
We live in an always connected world so it is not exactly difficult to have a quick look at the market every day, but the point here is that you should only do it if it is not taking away from the other aspects of your life. If you have ten minutes on the train or are waiting outside school for your kids, then that is the time to do it. If you are out enjoying a family day at the park, then put the phone away. The key is to make sure that you are not letting it dominate your life. Changes on a daily basis are almost never important enough to compromise the rest of your life for and it is easy to get obsessed, addicted even, to watching the numbers change. If you find yourself checking too often then you need to put some limits on the number of times you do it.
That said, there is no harm in looking and many people take joy in spending a quiet five or so minutes every day having a look. Depending on how deeply you think about it, there is also the potential for you to be able to start to spot some long term trends as well, put simply, it can be a good way of learning how to gauge the market. Signing up to get alerts from INDX.guru terminal when any activity happens with a company you follow, is good idea as well as it means that you won’t miss an important development.
Then we have the deep analysis on the performance of everything you’re involved in. This should be done on a monthly or bimonthly basis. This is the time when you devote at least a few hours to going over everything and thinking about it all in a strategic manner. Here you need to really dig down and try to focus not just on the daily occurrences but the overall patterns and trends as well as the possible disruptive events in the future. This is a different beast altogether from the daily or weekly check in that you might do. There are a number of ways you can go about doing this, with a whole bunch of measures that go beyond simply going off returns. There are formulas you can use that all you to quantify and measure risk with the variability of returns, and while there is no single measure actually looked at both risk and return together you can use the Treynor, Sharpe and Jensen ratios to combine risk and return performance into a single value. Here is a guide on how to use these and how to balance them out.
Watch INDX.GURU's CCO, Yvette Le Grew chat with Sky News - Technology Behind Business about disruption in the investment space.