Wednesday, June 11, 2014

The Power of Patience

After reading Richard Peterson's book "Inside the Investor's Brain", in which he explains some of the common mistakes/biases investors make when trading, I decided to conduct a little experiment. Having read about investors' tendency to overtrade, I decided to avoid looking at my investment account balances for a week.

One of the great things about a dividend growth portfolio is that it is supposed to be low maintenance; good companies keep earning superior returns, increasing their dividends over time, while I sit back and collect an increasing stream of dividends. Although this sounds very reasonable in theory, I found myself reading daily news alerts on my companies, and checking my account balances each night after coming home from work. Checking my investment account balances was a daily habit. After reading that investors who check their account balances are far more likely trade stocks, and knowing that trading decreases returns due to transaction costs, I decided to break this potentially wealth-destroying habit.

This Friday I can once again check my investment account balance, and get a gauge of how things went over the week. Not knowing exactly how every stock is moving each day is very liberating. I realize that I have faith in my investment process (on both the buy/sell sides), and checking in daily is simply not necessary.

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