STOP CHECKING THE MARKET

It's time that you stop monitoring your portfolio's performance at the end of each day. And all those times you check what the market is doing throughout the day? You have to stop that too. Why? It turns out that the probability of making money decreases as you narrow the time scale at which you track an asset's return. All that portfolio monitoring is just stressing you out.

The table below, taken from Fooled by Randomness by Nassim N. Taleb, displays the probability of making money from a portfolio with an annual average return of 10% and a standard deviation of 15%.( A standard deviation is a measure for the variability of returns. For example, the standard deviation for this hypothetical portfolio tells us that 68% of the time our portfolio will yield returns between -5% and 25%; 95% of the time returns should lie between -20% and 40%).

Note from this table that as we decrease time scale at which we monitor returns, the probability of making money decreases. If we track this portfolio's performance over one hour, for example, the probability of experiencing positive returns is only 51.3%. As Taleb explains,

"Over a short time increment, one observes the variability of the portfolio, not the returns. In other words, one sees the variance, little else."

In essence, by constantly monitoring your portfolio's performance you expose yourself mainly to its variance and the meaningless stress attached to this volatility: you're in the black one minute, only to find yourself back in the red in the next.