Don't Look! — Blissful Ignorance
Can Be Your Investing Ally

Earlier this summer, the price of oil was going through the proverbial roof. The oil run-up was painful at the pump, but not particularly bad news for people with heavy positions in energy stocks. Indeed, energy holdings helped our Upgrading portfolios outperform the market averages — significantly.

Then, in early July, the situation suddenly reversed. Oil began a dramatic downturn, reducing the pump pain but inducing agony for investors with energy-heavy portfolios.

Even as broad market averages began to advance, Upgraders were hit with a double-whammy: not participating as strongly in the broad market's overall gains, while simultaneously feeling the sting of oil's decline.

Now, here's a "thought experiment." Suppose that as oil prices were gushing upward, you were checking your investment performance every day. As your portfolio steadily moved ahead of the broader market, you would have been happy and content, knowing that your investments were really paying off.

But as oil began to fall — rapidly — the steady stream of "bad news" would have caused your anxiety to rise, especially when your holdings declined while the overall market advanced. Result: investor stress!

Now consider thought experiment #2: Suppose that while all these market gyrations were going on, you were not checking your investments regularly. Instead, you were enjoying time with family and friends, getting some exercise, and catching up on your reading.

Oil was rising and falling dramatically and your portfolio was taking wild swings, but you just didn't pay much attention. You had other things to do. The result: you weren't stressed out about it.

Here's the point. Unless you just happen to like high levels of stress, it simply doesn't pay to follow the daily movements of your portfolio. Sure, it may seem like daily performance information is helpful, or at least not harmful. But most of us simply aren't wired to process significant swings in our investments without a commensurate swing in our emotions.

Emotional upheaval causes us to want to "do something" in response — something like "get out of the market until things settle down." Unfortunately, that kind of short-term emotional response almost always undermines the long-term appreciation of one's portfolio.

Being successful over the long haul requires that you protect yourself from your emotions. You must train yourself to think like a long-term investor rather than a short-term trader. That involves establishing a realistic long-term investing plan, and sticking with it through thick and thin.

If your investing time frame is more than five years — which it should be for you to be in the stock market at all — there's a strong likelihood (if history is any guide) that the dollars you invest today will appreciate by the time you need to take them out. The longer your time frame, the more the odds are in your favor.

As the old saying goes, "It's time in the market, not market timing, that makes the difference."

Yes, you should check your holdings every so often. With Upgrading, it's a once-a-month check. With our Enhanced Just-the-Basics approach, it's every three months.

Simply put, the only time you really need to look at your holdings is when it's time to take a predetermined action that's based on your long-term plan, such as replacing one fund with another (as Upgraders do) or rebalancing your portfolio.

Of course, it's tempting to think there is a more profitable approach. All of us hear the "siren song" of trying to sidestep losses by selling out now and buying back in later. But there's no way to know in advance how the market will behave. Selling now might accomplish nothing more than locking in losses, because the market could very well hit bottom and turn higher just as you head for the door.

So if watching your portfolio go up and down has you all stressed out, the simple solution is to just look the other way — until your plan tells you it's time to look. When that time comes, check your holdings, take whatever action is needed (based on your plan), then get on with your life.

And no peeking.

Mark Biller is Sound Mind Investing's Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark is also the Senior Portfolio Manager of the SMI Funds.

Joseph Slife is a contributing author and editor for SMI. He spent 15 years with Crown Financial Ministries, co-writing articles with Larry Burkett and serving as executive producer for broadcasting. In addition to his work with SMI, Joseph is an adjunct instructor in the Dept. of Communication at Emmanuel College in Georgia.

• SMI's Fund Upgrading strategy
• SMI's Enhanced Just-the-Basics strategy
• The Realities of Market Timing

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