The Art of Smart Checking: How Often Should You Assess Your Investments?

Are you a Wall Street trader constantly checking your portfolioor a road trader content to let it silently grow? While the allure of constant monitoring can be alluring, the wisdom of Nassim Nicholas Taleb suggests that the best approach lies somewhere in between.

The Tale of Noise vs. Signal

In his book Foolied by Randomness, Taleb describes his experience as a Wall Street options trader, always aware of the traders around him engrossed in The Wall Street Journal. Yet, he preferred the quiet insights of specialized newsletters and time spent reasoning about market risk amidst the familiar scenery of a park.

He argued that the constant checking of your portfolio, like the constant plucking of seeds from a sudden storm’s wake, erodes your cognitive well-being. The relentless search for signals in the sea of random noise can lead to unnecessary stress and even cognitive decline over time.

Understanding the Statistics

A key point in Taleb's argument is the statistical reality of investment success. An investment strategy with a 93% likelihood of success in a year might actually have only a 54% chance of being successful on any given day or a mere 51.4% success rate on any given hour. This means that much of the day-to-day variation is merely noise rather than meaningful trends.

The Impact of Loss Aversion

Moreover, the negative impact of constant checking is amplified by a psychological phenomenon called loss aversion, or the tendency for a loss to carry more psychological weight than a gain. This bias can significantly increase stress levels, as minor dips in portfolio values can be magnified in the mind's eye.

A Balanced Approach

The solution lies in a balanced and less frequent review of your investments. Taleb suggests that checking the same portfolio once a month will likely result in 67% of the time having a better position than the month before. Checking quarterly can often result in a 77% chance of smiling, suggesting that regular checks do not always correlate with increased stress but can lead to a more relaxed and cognitively healthy lifestyle.

The Long-Term Perspective

For those with a long-term horizon, the historical data paints an even more reassuring picture. According to Peter Oppenheimer, as detailed in The Long Good Buy, holding a stock for 10 years results in a negative return only 3% of the time. This stark statistic emphasizes that the long-term is where the real value lies, and short-term fluctuations are often nothing more than white noise.

Judicious Decisions Lead to Smarter Checking Habits

Simply put, judicious investment decisions lead to judicious checking habits. The best way to manage your investments is to make informed decisions, then let them grow steadily over time, free from the added stress of unnecessary checking. Investing with an impulsive drive to constantly check your portfolio can lead to reactive rather than strategic decision-making, leading to doubt and unnecessary worry.

By making thorough research and ensuring confidence in the decisions you make, you can reduce the frequency of checking and avoid the cognitive strain. Instead, you can channel your time into more productive activities such as further investing research, personal development, or simply enjoying a well-deserved break.

Conclusion

In conclusion, while it’s tempting to constantly monitor the performance of your investments, Taleb’s insights from Foolied by Randomness and Oppenheimer’s advice from The Long Good Buy suggest that a more measured, less frequent approach can lead to better psychological and cognitive health.

By adopting a smarter, more strategic approach to portfolio assessment, you can ensure that your investments thrive without becoming a source of undue stress and cognitive decline.

Remember, patience and persistence are key. By choosing the right investments and checking them judiciously, you can enhance your chances of long-term success while maintaining your mental well-being.