Amar Pandit , CFA , CFP

I know the above headline is cryptic so let me give you a clue through a Behavior Gap sketch.

I am sure you not only figured the first D and the last D but also the middle “MQY”.

D = Days
M= Months and Q = Quarters
Y = Years and D = Decades

Can you guess what I am trying to say?

Hint: Watching Portfolio Reports

Let’s take a look at yet another visual.

The chart above shows the return of the same investment based on whether you look at the portfolio daily or every 5 years.

When you look at the portfolio report daily, you see the light blue line and it could be up or down or flat. Similarly, if you look at the portfolio report monthly or quarterly, you are likely to see market volatility. But, if you look at the portfolio report every 5 years, you are likely to see a smoother line normally trending upwards (disclaimer – past performance is no indication of future performance). However, that is not the point that I wish to make and nor am I suggesting that you should look at your portfolio every 5 years, even though there are people who simply do that. My Dad is one of them.

The Real Benefits of watching your portfolio sparingly are many:

a. No stress about the short-term movements of the markets. There is no worry.
b. Thus, you end up behaving well. In short, Great Behavior. Wiser Decisions.
c. You do not interrupt Compounding and thus Compounding works for you.
d. You Sleep Well at Night. This contributes to a Healthier and an Optimistic You.
e. This cycle continues.

Seeing portfolios daily or even monthly (may I even say every quarter) does no good unless you are a day trader (in which case even a day might be long for you). For investors, no significant change happens on a daily, monthly, quarterly, or even an annual basis. You might even think nothing is happening. It’s true but wise investors know that they have to go through this pain of sometimes staying invested for months, quarters and years where nothing seems to happen. Then again there are some months, quarters, and years where decades happen.

Let’s assume for a moment that your investment goes down by 25% for a few months or even a year.

If you are a real long-term investor, how does this really impact you?

You and your real financial professional would have planned your investments in such a way that even if this temporary decline were to happen, there would technically be no impact on your lifestyle or any of your needs. You can continue to live and maintain your lifestyle even if the market is down by 25%. Remember that declines are always temporary. In fact, if anything, this decline would present a solid opportunity for you to make additional purchases. Thus, you must look at such declines as an opportunist and not as a victim. If you can manage to do that, you would have developed the mindset of a world class investor.

By this point of time, some of you might have this question “Amar, shouldn’t we be seeing something to make sure we are making progress or how will we ever know we are making progress.”

Excellent Point. But how do you define progress is the moot point?

Let me give you 2 situations.

  1. Let’s say you watch your portfolio every month, you manage to keep your nerves and beat the Sensex/Nifty over your lifetime. It is still completely possible that you do not have enough to maintain your lifestyle or that you manage to not achieve your goals.
  2. On the other hand, you underperform the index of your entire life. However, because you have planned your financial life well, it is absolutely possible that you have enough to maintain your lifestyle and achieve every financial goal.

Which option would you prefer?

I bet it would be Option 2 (as this is what I would choose too ☺).

So, Progress is all about the following questions:

a. Am I making progress towards my goals? Am I on track?
b. Am I saving and investing what I need to do regularly?
c. Am I making progress towards Enough?
d. Am I letting my investments COMPOUND? (This is powerful, because if you don’t let your investments do their job, even a 200X Fund might not be Enough for you.)
e. Have I made progress in terms of protecting my family and my assets should something happen to me?

When it comes to investing, we all have a choice. We can decide to focus on Days, Months, Quarters, Years or Decades.

Wealth Creation is a Function of Compounding a Diversified Portfolio of World Class Companies over several decades. The key words to remember are Compounding, Diversified (Risk Management) and Decades. Compounding simply does not work well with Days, Months, Quarters and a few Years. The key word is Decades. The Secret to Real Progress lies in our ability to allow Compounding to work for us over the next several decades. It’s not by watching our portfolios continuously.

What will it be for you?

Days, Months, Quarters, Years OR Decades.