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Here’s a very common situation: You decided to invest some money into a stock. Day and night, for weeks, you labored and searched for the perfect stock to put your money in. Then you found it. You eagerly open your brokers account and hit the “Buy” button with glee. The little ticker shows that now you have 1000 shares of that stock you wanted. Awesome!
For the rest of the day, you peek at it from time to time, seeing it go up and down. “Yes, I made $100″, you think to yourself, “Good Job!” or “Crap, it’s down $100, but it’ll definitely go back up again!”. This cycle continues. Day after day, you get up and look at your stock to see how it’s doing. You are kind of happy when it’s up, and a little annoyed when it’s down. Then one day, one of two things happen.
In situation A, the stock suddenly gets some amazingly great news. It starts to go up and up every single day. Every day, you wake up, go to your monitor, and look at the extra money you’ve just made. “Haha, that’s awesome!” you think to yourself. “I’ve so hit the jackpot! It’s great that I picked out such an amazing company!” Of course, you hold on to them, seeing how great the company is and how bright their future is. There’s probably more profit to come!
In situation B, a CEO commits suicide or something, and the stock suddenly plunges. At first, it doesn’t bother you that much, because you knew that you made a solid decision to buy into the company. However, as the days and weeks go by, with the stock getting lower and lower every day, you start to worry. Your confidence starts to shrink and you feel like you might’ve made a wrong decision. Part of you is wondering if it’ll go even lower, and that maybe you should sell. However, your ego won’t let you do that, as you’re way too deep in the hole. You hold on to it, waiting to get even.
What is wrong in both of these situations? Well, you spent a lot of time looking at the stock, but you weren’t going to do anything in either situation. This is equivalent to watching TV. You stare at a ticker going up and down for many days of the year, and at the end of the year, you don’t actually do anything. You might as well have just taken that chunk of time watching the ticker go up and down and pretend it doesn’t exist, since you’ve basically wasted it.
Compare all that watching with just looking at the stock once at the end of the year. You’ll gain the same amount of information, but only take up a few hours compared to days and weeks of watching. Since you weren’t going to sell it when the stock goes up, and you weren’t going to sell it when the stock goes down, why waste all that time? If you spend an hour a day looking at the stock and following up on the news, that’s 365 hours a year. At a mediocre salary of $30/hr, that’s $10950 of worthwhile work you could’ve done. Does your watching it somehow make you more than $10950? If it somehow does, I’d love to know
Well, then why do people like Warren Buffet look at the numbers all the time? Well, that’s because he can and will do something about it. If there is something wrong with the business, he might sell it, or work with the current managers to fix the problem. Sure, you could sell your stock also, if you were swing trading or day trading (which by the way I wouldn’t recommend), but why do all that work to find a good investment if you are just going to sell it? I’ll further explain this in why you should invest for the long term.
Bottom line: Focus on the things you can/will do something about. Ignore the things that are out of your control.
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