How often should you check your stock portfolio?

This post is based on OSV’s post by Daniel Sparks. Daniel was kind enough to permit use of his idea for this post. Thanks Daniel 🙂

So how often do you check your stock portfolio? We have personally seen people checking stocks in their portfolio every few minutes! But we are not going to judge them. They may be short term traders who need to do it as they are there to make quick profits, or they may be ones who get a high everytime their stock moves up a bit (even though they will not trade regularly). We will rather talk about long term investors. Investors who are willing to stay put in markets for years and if possible, decades.

In the greatest investment book ever written (The Intelligent Investor), Benjamin Graham says –

“The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.”

Greats like Benjamin Graham, Warren Buffett & many other veteran long-term investors pay very little attention to daily prices. They buy stocks of great companies and pay more attention to what the company is doing and how the economy is affecting the company’s operations.

But we are not Warren Buffett, and therefore we need to understand that we cannot operate like him. We must accept the reality, that we do and will check our stocks as much as possible. 🙂

But what we all can TRY is that we can reduce are frequency of checking stocks. How do we do it? At first, we need to segregate them in following categories –
  • Large Caps
  • Dividend Stocks
  • Mid Caps
  • Growth Stocks

Large Caps

Large Caps are industry leaders, have sustainable businesses and provide solidity to your portfolio. They are generally among the top 100 companies by market cap. They typically don’t need to be checked very often because you can rely on their reliable cash flows & good managements. So if you are ready to stay invested for years, it does not make much sense to check them on a quarterly basis. Such companies don’t change much on quarter to quarter basis. An investor should rather focus on checking the annual reports (and letter from management). In addition to checking such stocks on annual basis, one should also set some kind of alerts to get notified in case prices move more than 5% in a day on either side (sites like allow such service). This helps staying in loop in case of some major news or development, which demands an investor’s attention.

Dividend Stocks
Being part of mature industries, dividend stocks are generally not very volatile. They are present in portfolio primarily for their dividends and less for capital appreciation. Like large caps, these stocks provide a lot of solidity to portfolio. Such companies should be looked at on a half yearly basis to see if they are performing in expected manner, whether dividends being paid are increasing / decreasing / remain same. Alerts can be set up in manner as specified for large caps.

Mid Caps
Mid caps are companies which are outside the top 100 companies by market cap and are more volatile to news or result declarations. Their prices move very quickly and therefore it is important not to be overwhelmed by any drastic price movements. The important point is to understand the difference between meaningful news and short term jitters and not fall victim to acting on emotions. Such companies should be checked on quarterly basis to see if the company is performing as expected or otherwise. Alerts can be set at (+/-) 7%.

Growth Stocks
These are companies that are growing at fast pace and are part of rising industries. Such stocks do not offer dividends (generally) and hence are of very volatile nature. Such stocks should be checked every quarter to see whether growth story is intact or not. Alerts can be set at more liberal (+/-) 7%.

One of the advantages of setting alerts is that it allows a long term investor to be ready to buy more, in case prices fall a lot but reason for buying the stock initially still remains valid.

We must understand that the most important decision is not how often one checks stock prices, but what one does with that information. One should act on changes in the economy or other conditions that affect the company.  Reacting purely on price changes is not a wise thing to do. Daniel Kehneman said:

“Investors should reduce the frequency with which they check how well their investments are doing. Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes. The typical short-term reaction to bad news is increased loss aversion. Investors who get aggregated feedback receive such news much less often and are likely to be less risk averse and to end up richer. You are also less prone to useless churning of your portfolio if you don’t know how every stock in it is doing every day (or every week or even every month). A commitment not to change ones position for several periods improves financial performance.”

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  1. To me the most valuable insight from this post is the idea of setting alerts for a high stock price movement in a single day. Being a passive investor it is possible to overlook major news on your stock and this tip neatly takes care of that.

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