E-Mail 'Why You Should Ignore Your Portfolio for Months at a Time' To A Friend

by Investing School on April 7, 2009

Email a copy of 'Why You Should Ignore Your Portfolio for Months at a Time' to a friend

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ObliviousInvestor April 7, 2009 at 6:33 am

Love this series….

The idea of not checking your portfolio is pretty much what my entire blog is about, hence the name.

Also, I have a copy of Fooled by Randomness waiting to be read. (Currently working through Random Walk.) You just motivated me to read a little faster to get to it. 🙂

Jimmy April 7, 2009 at 9:40 pm

It makes sense in theory to ignore the portfolio at months at a time but it’s extremely hard to do! Are you seriously going to be able to not look at your performances?

UH2L April 8, 2009 at 2:53 pm

I completely disagree with ignoring the portfolio for a long time as a strategy. I am a fan of Taleb’s book, but his point is based on an assumption that a person only sells once after buying. If one repeatedly buys and sells by taking advantage of volatility, then that person can come out ahead. I do it in small chunks, $500 to $1,000 per fund at a time. If I get 3% more shares at each sale by selling then rebuying and I do it 4 times, then I earn ((1.03^5) – 1) or 12.5%! I do this with mutual funds in my 401K where there are no trading fees, but I have to wait until the excessive trade deadlines pass, (usually 30 or 60 days).

By looking at your funds only once a year, how do you know you’re looking and rebalancing at one of the more fortuitous, extreme times? One must take advantage of volatility by looking and seeing when things are down or up as these don’t always happen at the end of a quarter or at the end of a year.

The key is not to panic and follow some rules as to when you’ll make these trades. Even in a bull market, there is enough volatility that prices go down 3% or so every now and then. The same holds true in a bear market; prices will occasionally go up 3% over some interval. And you don’t want to buy or sell all of your holdings in a given fund because you might lose out on overall long term growth. Just do it in small chunks. If one fund goes up, another is bound to go down over the same time period. Doing it with a few percent of swings locks in the benefit of volatility little bits at a time.

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