My dear Friends,

I recently went for a long spring walk with a friend. It was a beautiful spring Sunday; we were chit-chatting about this and that, and it could have been a very relaxing afternoon.

Yet, my friend was edgy, and that really rubbed off on me. So I asked what the matter was. ” Don´t you follow the stock markets?” she lamented; she was very upset.

What had happened? That morning, she checked her portfolio and discovered that some stocks had fallen badly. On a Sunday, really?

Now, she was mincing her brain on how to contain that loss and how she could get rid of that investment and restructure her portfolio a.s.a.p.

Her enthusiasm to understand what is happening in the markets daily impressed me. But I also asked myself if it is really necessary to check the stock market daily if that sends her into such a frenzy. Quite frankly, I have other things to do.

Stay with me for a while and discover why checking the stock markets daily is really disastrous.

What are stock market indices for?

If you read or listen to the financial media, you might get the impression that the Dow Jones(US), FTSE 100(GB), Dax(GER), Hang Seng(Hong Kong), TASI (Tadawul, SA), Merval(Argentina) and many more indices serve as the pulse of the markets. This, in fact, is generally true.

People who report on markets will often use the ups and downs in these indices as a shorthand for the health of the market and economies in general. 

Clearly, these indices, along with many others, can give you a good amount of insight to use in making more informed investing decisions.

Index numbers, however calculated or displayed, will measure a change from an original or base value. The base value of an index is not a true measure of the value of individual stocks but rather the weighted-average stock price of all the stocks that make up that index. An index usually represents a certain market segment like health, tech or industry.

Yet, the index number has much less meaning than its percentage of change over time. This movement up or down gives you an idea of how the market for that index performs broadly.

But, be aware that most indexes, even those that serve the media as casual stand-ins for market health, only reflect a portion of the total market. That is because each index typically holds a cross-section of stocks from certain sectors.

Remember this:

It’s easy to get caught up in the rapid changes. So much information in a number format is daunting. Cleary indices provide a yardstick for comparison over time, but by design, they are flawed.

People buy and sell stock mainly driven by bias, news and emotions, and people do make mistakes.

Choosing which stocks belong in an index repeats year after year, a process that is equally flawed as this prevents comparing indices. Realistically one can not compare an index of 1995 with the same index in 2022. The companies included in the index will have changed by default.

Further, looking at indices, large to giant companies tend to be overrepresented. Consequently, their performance will have a greater impact on the index than others. So, if one company has a bad day, it can throw off the whole index.

A fruitless past time

I do agree we like to control things and love to prevent bad things from happening. But looking at your portfolio every day and checking out share values is really not the right approach.

Everything depends on your long-term investment strategy. Daily changes in stock prices have essentially zero value for your overall strategy. On the other hand, if prices are rising every day, it can lead you astray, too, causing you to take on more risk in your portfolio than you can really handle should the market shift direction.

Of course, daily losses are tough to bear, but history suggests that staying the course in weaker markets is often a robust plan for investors.

As a rule, in finance, even if markets are not so good, checking daily price changes make, will make you focus on the distracting noises, but you´ll overlook the bigger picture and signals for long-term development. Look in at your portfolio every day may also encourage you to trade more. However, research shows that people who trade frequently have done worst than those with a buy-and-hold strategy.

Bear in mind checking on your stocks each trading day is addictive, like looking at social media. And like too much social media, it is not good for you!

Do NOT to check the market every day!

While doing a quarterly investment checkup is a wise idea, checking your portfolio daily is anything but. Here are a few reasons:

1. It is bad for your mental health: In a bear market, stocks are volatile. Your portfolio value can fluctuate substantially from one day to the next. That could mean seeing your investments’ value drop thousands of dollars overnight. On a screen, that is! A day or two later, your portfolio might be back up or even higher.
2. You could make rash decisions: Seeing the value of your investments plummet on screen could drive you to make poor decisions that lead you to lose money needlessly. And the more frequently you check your portfolio, the greater the chances of that happening.
3. Fluctuations have no long-term consequence: Forget about timing the market and making tons of money. It does not work- it never has. It is much better to load up on quality stocks and hold them for a while. Then even a drastic single-day drop will be meaningless in the grand scheme. So, checking your portfolio daily is really just a waste of time.

Disaster-less

Checking up on your investments on occasion is certainly a very smart thing. You might own a stock that has consistently lost value since you bought that share. So, if you don’t do a checkup, you won’t know when to take action.

However, checking your portfolio daily is a silly and needless thing to do. Just imagine the unnecessary amount of stress this will cause you. All the more reason to resist that urge.

If you have that much time to spare rather, write an investment plan, a key step to reaching your financial goals.  A simple one-page document can document your investment goals to keep you on track. Once the riding gets rough, it is something to refer to. Unlike randomly glancing at stock prices, an investment plan is more likely to help to meet your investment goals.

Speed Read

The ups and downs of stock market indices are a shorthand for the market’s health and economies in general. 

The base value of an index is not a true measure of the value of individual stocks but rather the weighted-average stock price of all the stocks that make up that index.

Cleary indices provide a yardstick for comparison over time, but by design, they are flawed.

Everything depends on your long-term investment strategy. Daily changes in stock prices have essentially zero value for your strategy.

As a rule, in finance-though the markets are not perfect- looking at daily price changes make, will make you focus on the distracting noises, but you´ll overlook the bigger picture and signals for long-term development.

Checking on your stocks each trading day is addictive, like looking at social media. And like too much social media, it is not good for you!

Checking up on your investments on occasion is certainly a very smart thing. But checking daily causes an unnecessary amount of stress. A good reason to resist that urge.