Stupid to Look at Portfolio Too Often

General Discussion on the Permanent Portfolio Strategy

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stuper1
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Stupid to Look at Portfolio Too Often

Post by stuper1 » Tue Nov 27, 2018 10:22 am

I'm reading "Fooled by Randomness" by Nassim Taleb. He gives a quantitative example of why it's foolish to look at your portfolio very often. Consider a super investor who averages 15% returns annually with a 10% standard deviation. Measured on a yearly basis, he has a 93% chance of a profit. However, on a quarterly, monthly, and daily basis, his chances are only 77%, 67%, and 54%. Combine this with the fact that a $1 loss is felt twice as hard as a $1 gain (some studies actually indicate maybe 2.5 times as hard).

So, if he looks at his portfolio once a year for 100 years, he will experience 93 points of pleasure and 14 points of pain.

If he looks once a quarter for 100 quarters, he will experience 77 points of pleasure and 46 points of pain.

If he looks once a month for 100 months, he will experience 67 points of pleasure and 66 points of pain.

If he looks once a day for 100 days, he will experience 54 points of pleasure and 92 points of pain.

The idea is that even though you are making a profit in the long-term, you are killing yourself with negative emotions over that same long term by looking at results too often, when most of the results you are looking at are just due to random noise in the market, not any long term trend.
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Re: Stupid to Look at Portfolio Too Often

Post by flyingpylon » Tue Nov 27, 2018 12:56 pm

Never mind the additional pain points for whining about it on the internet...
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buddtholomew
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Re: Stupid to Look at Portfolio Too Often

Post by buddtholomew » Tue Nov 27, 2018 1:27 pm

Just quoting the facts
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Re: Stupid to Look at Portfolio Too Often

Post by stuper1 » Tue Nov 27, 2018 1:31 pm

This was for a hypothetical super investor who gets average 15% returns with a 10% standard deviation.

I imagine the analysis for say a PP invester who gets average 7% returns with a 5% standard deviation (or whatever) would be pretty similar. In other words, a small majority of days are up over the long term, but if we look every day, we will get a lot more pain from the abundant minority of down days than we get pleasure from the small majority of up days.

I know this point has been discussed many times before in various ways, but I thought that Taleb's quantitative analysis was helpful.
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Cortopassi
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Re: Stupid to Look at Portfolio Too Often

Post by Cortopassi » Tue Nov 27, 2018 8:42 pm

That is great to read Stuper, and makes a lot of sense. The days when I'm too busy to look don't bother me anymore. Maybe I can get to once a week soon, then once a month and once a quarter. Pretty sure I can't get to once a year...!
barrett
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Re: Stupid to Look at Portfolio Too Often

Post by barrett » Wed Nov 28, 2018 8:14 am

Sure, constant portfolio checking doesn't make sense and it certainly doesn't help a person grow their money. But how does one really not know more or less how much money they have at any given time? For example, if I have a million bucks stashed away and I have 30% in stocks (because that's my AA) and stocks take a 10% hit, then I know I'm down $30,000 in that quadrant... and I have a pretty good idea that I'm down about that much overall unless I've heard or seen something about a rally in gold or bonds.

It's just really hard now to not get financial information. I go to the gym most days and there's always CNN with ""breaking news" about a stock "plunge" or whatever. Or you hear news of the Dow Industrials while driving in your car. Or your Chinese wife asks you what's up with the stock market because she's watching the news channel from Beijing and they're talking about weakness it the US markets.

Not caring is, I think, the only realistic goal. FWIW, I haven't looked at my portfolio since 11/15 when I had to reinvest some long bond dividends, but I still know more or less where I'm at. Just sayin'.
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Re: Stupid to Look at Portfolio Too Often

Post by Cortopassi » Wed Nov 28, 2018 8:55 am

barrett, you haven't looked for 3 years? How do you get notified if you need to rebalance?

That might be a way to go for me, since all this is in a Google sheet, if I can trigger an email if a certain cell goes above or below a value....hmmm....

I am close to not caring. Realizing I am able to pay for college for my kids without stressing finances was a really big one for me. That is the last big known lifetime spend. Oh, God, now I'm stressing out about getting old... :o
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buddtholomew
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Re: Stupid to Look at Portfolio Too Often

Post by buddtholomew » Wed Nov 28, 2018 10:34 am

Cortopassi wrote:
Wed Nov 28, 2018 8:55 am
barrett, you haven't looked for 3 years? How do you get notified if you need to rebalance?

That might be a way to go for me, since all this is in a Google sheet, if I can trigger an email if a certain cell goes above or below a value....hmmm....

I am close to not caring. Realizing I am able to pay for college for my kids without stressing finances was a really big one for me. That is the last big known lifetime spend. Oh, God, now I'm stressing out about getting old... :o
Maybe Barrett means November 15th
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Re: Stupid to Look at Portfolio Too Often

Post by dualstow » Wed Nov 28, 2018 11:05 am

I try to just look at dividends and interest coming in. Makes my hair grow.
Vanguard treasury money market still paying 2.17%
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Cortopassi
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Re: Stupid to Look at Portfolio Too Often

Post by Cortopassi » Wed Nov 28, 2018 11:24 am

buddtholomew wrote:
Wed Nov 28, 2018 10:34 am
Cortopassi wrote:
Wed Nov 28, 2018 8:55 am
barrett, you haven't looked for 3 years? How do you get notified if you need to rebalance?

That might be a way to go for me, since all this is in a Google sheet, if I can trigger an email if a certain cell goes above or below a value....hmmm....

I am close to not caring. Realizing I am able to pay for college for my kids without stressing finances was a really big one for me. That is the last big known lifetime spend. Oh, God, now I'm stressing out about getting old... :o
Maybe Barrett means November 15th
Yeah, that's got to be it.
barrett
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Re: Stupid to Look at Portfolio Too Often

Post by barrett » Wed Nov 28, 2018 12:38 pm

Cortopassi wrote:
Wed Nov 28, 2018 11:24 am
buddtholomew wrote:
Wed Nov 28, 2018 10:34 am
Cortopassi wrote:
Wed Nov 28, 2018 8:55 am
barrett, you haven't looked for 3 years? How do you get notified if you need to rebalance?

That might be a way to go for me, since all this is in a Google sheet, if I can trigger an email if a certain cell goes above or below a value....hmmm....

I am close to not caring. Realizing I am able to pay for college for my kids without stressing finances was a really big one for me. That is the last big known lifetime spend. Oh, God, now I'm stressing out about getting old... :o
Maybe Barrett means November 15th
Yeah, that's got to be it.
Yeah, it's November 15th. But even that is an accomplishment for me. I check on this stuff way too often. It's become a habit and it's not a healthy one especially when one considers that the expected return of the PP is only 3% - 6% annual in real terms. Holding three volatile assets makes for a lot of hand wringing.

Now that I'm retired and paying myself a monthly check, I'm trying to cut back to checking once a month. A T-Bill comes due, I take my monthly draw and reinvest the rest in a new bill.

BUT, I'll also say it's almost impossible to be on this forum and not have a really good idea where asset prices are at any given moment. There's an overload of non-actionable information online. The plus for me has been that I've learned a ton both on here and also over at Bogleheads.
barrett
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Re: Stupid to Look at Portfolio Too Often

Post by barrett » Wed Nov 28, 2018 12:45 pm

Cortopassi wrote:
Wed Nov 28, 2018 8:55 am
Realizing I am able to pay for college for my kids without stressing finances was a really big one for me. That is the last big known lifetime spend. Oh, God, now I'm stressing out about getting old... :o
Congratulations on getting over the college stress hurdle, Cortopassi! We have three more undergrad semesters to pay for and I have to say that it's really nice when a financial plan actually works. While you're stressing about getting old, I will be stressing about whether or not our daughter will score a decent job 18 months from now. O0 (Afro Smiley for dualstow's amusement)
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