How often do you check your portfolio returns?

Daily: 54% chance of a positive return

Most things happen on a daily basis, things like breakfast, newspaper delivery, sunrise, sunset, so why not check your portfolio daily? If you do, you’re going to get a lot of what Nassim Taleb, author of Fooled by Randomness, calls noise, rather than performance. If you do this, then about every other day, you’re going to be disappointed with the results, as the odds are 54% that you’ll see a loss. What’s more, losses hurt more than gains give pleasure, at about a ratio of 2:1, making for an annual “emotional deficit” (Taleb’s term.)

Monthly: 67% chance of a positive return

Check your portfolio monthly? After all, that’s how often your statement comes. Then you’re likely to have eight months of the year when you’re pleased and four months when you’re disappointed, for a ratio of 2:1. The ratio of pleasure to pain is about even, at 2:2, since pain has an emotional cost about 2x that of pleasure.

Quarterly: 77% chance of a positive return

If you check your portfolio only once a quarter, chances are pretty good (77%) that you’re going to be a happy camper. That’s a ratio of about 3:1, so your ratio of pleasure to pain is 3:2. Not as good as checking annually, but a lot better than checking every month.

Annually: 93% chance of a positive return

On average, you are about 13x more likely to experience satisfaction rather than anxiety. Since Daniel Kahneman showed that losses have incur pain that is 1.5-2.5x the pleasure that comes from gains, your likely ratio of pleasure to pain is 13:2. Put differently, over ten years, you’re likely to have one year where you feel lousy and nine where you feel good.

Source: Thinking, Fast and Slow; Kahneman, Daniel