How Often is Too Often?

Productive anxiety vs unproductive anxiety

Inertia

Can you imagine how much of an investor’s mental capacity is squandered daily by checking price quotations? How much of their attention is wasted annually on the minutiae of stock market ebbs and flows? Investors like to occupy themselves by telling stories in between the movement of security prices. About companies they own or are studying. Worse still, they get sucked into debates about matters that don’t concern them. Earnings come around once per quarter, so it’s tempting to fill the time with busy work. Research occurs, as well as the maintenance which succeeds it. Regardless, I have an inkling that for most individual investors, too much time is allocated to engaging in distraction.

As individuals, we have a finite capacity to turn over new rocks. Strangers on the internet, journalists, the talking heads at CNBC. These people seldom value their audience’s time. These distractions never expire. Someone, or something, will always take their place. The longer I do this, the more I have come to appreciate that 95% of the information you are likely to consume is a waste of time. A little selectivity in your information diet and some inertia can go a long way.

Harnessing anxiety, the right way

Investing over a long time frame is challenging enough. Observe a 40Y chart¹ of the S&P 500 and it will show you some pretty daunting troughs and some marvelous peaks. Yet, the index has compounded at ~9% over that time. I prefer to look at the same chart but adjusted to show the daily periodic return of the index. It’s not as easy to intuit that this index has returned more than 3,000% across the time frame. I’d argue that, to a layman, it would be near impossible to confidently state whether or not this data amounts to a positive or negative total return.

SPX Daily Total Return, via Koyfin

Instead, it emphasises volatility. Significant gains are situated in proximity to significant losses. A good reminder that you are only ever a short distance away from a humbling. My point being, that the stock market already does more than enough to entice you into making irrational decisions. It already provides you with an unwavering stream of dopamine. A daily call to action. It’s what makes investing so euphoric, panic-inducing, and ultimately so captivating. The distractions I referenced earlier would then be an added layer of distraction upon an already tempting body of distraction.

The antithesis of productive worrying is unproductive worrying; the kind where you worry about things you have no control over². Seth Klarman has this great bit about the difference between productive and unproductive worrying:

“Successful investing goes hand in hand with productive worrying. Worry enough during the day and you can, in fact, sleep justifiably well at night. All of us are subject to biases that can impair our objectivity in investment decision-making. Have we blindly ignored new information because we are clinging too tightly to our original thesis? Have we held onto an investment because it keeps going up, irrationally ignoring that it has become overvalued? Without a healthy dose of reflective worry, we are unlikely even to identify our lapses in judgment, let alone correct them. In other words, only by actively, productively, relentlessly worrying about what can go wrong can we maximize the odds that things will go right, by doing everything within our control to perfect our decision-making”.

It’s not about absolving yourself of worry or contemplation. Anxiety is natural. It has assisted in the survival of the human race and animals for millennia. It’s not going away. Anxiety ought to be harnessed productively. On the right things.

How often do you check your portfolio?

I am pandering to the long-term fundamental investor here. Is revelling in your capabilities on a big up day meaningful? Is biting your nails as you look at the daily P/L while Market In Turmoil tweets circulate any better? Regardless of direction, is checking your portfolio value for the 6th time in a day going to make you more informed? Is spending 30 minutes defending a stock you own to someone who ultimately doesn’t care a worthy use of your time?

I don’t believe that any investor, consumer, or human is perpetually rational or irrational. I am of the mind that, on average, we tend to be mostly rational, most of the time but are susceptible to bouts of irrationality. Usually, this comes at the most inconvenient times. The variables that trigger irrational behaviour include hysteria, fear, confidence, uncertainty, FOMO, headlines, market trends, peer pressure, commitment bias, herd behaviour, greed… etc. Everyone’s temperament differs. Some can insulate themselves from emotional responses better than others. However, indulging in activities that will not satisfy the question of “does this make me a more informed investor?” will lead to higher odds of being influenced by those variables which, in turn, spur irrationality.

When markets are going up, nobody ever stops to ask, “Why are these stocks going up?”. Because they are certified quality, multi-baggers, execution machines…obviously. Only when the market goes down do investors transform into economists. They manufacture answers for why their stocks are struggling. Nobody ever addresses the elephant(s) in the room. Maybe you were wrong. Perhaps volatility is just normal and we needn’t give it so much attention? Maybe there doesn’t have to be a reason.

Individuals who idolise celebrities are mocked for devoting their time to frivolity; acquiring useless information that will serve no purpose other than to pass the time. Yet, there is a likeness between these people and the common investor. The financial media celebritises³ investors, companies, and CEOs. Picture it as a great chasm; something like the Grand Canyon. It can be a rich vein of useful information. Something to view from afar, to tap into sparingly. But, if you are not careful, you will fall over the edge and be engulfed by an endless cycle of noise.

Let’s assume you own 20 stocks. That’s ~80 earnings calls a year and let’s say ~160 filings (assuming one release and one 10-Q or equivalent each quarter). Layer in the occasional investor day, M&A call, analyst day, big announcement, and so on. You likely spend some time talking to other investors, reading external research, and maintaining a suitable diet of news. For what amounts to the bare minimum that an individual investor who picks stocks ought to be undertaking, the amount of time dedicated to maintaining a process quickly stacks up. This is before factoring in some time for turning over new rocks, which is a process that can be intensive when you consider the research is front-loaded⁴.

This takes priority. This use of time is more valuable. Getting sucked into the heartbeat of the stock market on a day-to-day basis detracts from that and flirts with welcoming irrational behaviour through the door.

Thanks for reading,

Conor

1. S&P 500, daily total returns.

2. Quote taken from an older article, The Spectrum of Concern.

3. Celebritises; to transform or portray a person, object, or concept as a celebrity, often by emphasizing its appeal, glamorizing its attributes, and amplifying its presence in media and popular culture. This is not a recognised word in the English language. I made it up.

4. By this I mean that you typically spend longer, go deeper, and broader, in the understanding of a new company. Compare that to an existing holding, where the initial legwork has been done and is more maintenance-focused.