I wrote a piece immediately after Brexit. Like many, some of us too were expecting the market to correct in the near future. Markets, as always unpredictable, have been moving up after the event.
This shows the difficulty of forecasting and predictions. That’s why it’s always best to ignore them and stay the course. Though at times I do anticipate some market movements, I don’t change my investment plan accordingly. I simply stay the course with my portfolio. As you are all aware, I do the same for you as well. Brexit or no Brexit, the only sane option is to continue your SIPs.
Like I’ve mentioned many times before, we don’t try to sell our house or land based on constant news flows and macro events. In fact, we are not even aware of their exact market value. We intend to own those assets for decades. The same yard stick needs to be applied for equity funds as well. I would like to share what Buffett says in this regard.
“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of ‘Don’t just sit there, do something.’ For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”
One way to increase the tenure of equity ownership is not to look at the value frequently. Many investors’ emotions get as volatile as markets when they keep looking at prices or NAVs regularly.
The less frequent you see, higher the probability of positive returns. The more positive returns are, higher the motivation to stay the course.
I want to share with you what personal finance expert Carl Richards has mentioned in this regard.
“Since many of us use the Standard & Poor’s 500-stock index as a proxy for the market, let’s take a look at the period from 1950 to 2012 to see how often we’re likely to feel positive, based on how often we check our investments:
If you checked daily, it would be positive 52.8 percent of the time.
If you checked monthly, it would be positive 63.1 percent of the time.
If you checked quarterly, it would be positive 68.7 percent of the time.
If you checked annually, it would be positive 77.8 percent of the time.
So here’s the thing to ask yourself. Other than upsetting yourself half of the time, what good is it doing you to look anyway? Maybe we should all invest as if we’re going on a 12-month trek in Nepal!
So along with your do-nothing streak, let’s see how long you can go without looking at your investments (assuming you’re in a low-cost, diversified portfolio, of course). I think you’ll discover that it makes you happier, keeps you from doing something stupid and helps you become a more successful investor.”
As we never get tired of repeating, please check your mutual fund portfolio only once a year. This increases the probability of seeing positive returns. Positive returns would lead to better emotions and self control.
Treat equity funds the same way you treat your house. Don’t look at the value frequently.