Turns out, it doesn’t cost much to drive yourself batty over your investments.
For the past week, ever since I broke one of my cardinal investing rules by buying an individual stock, I have experienced pronounced emotional swings over the company’s every tick and trade, feeling accomplished when the price rises and despondent when it falls.
The size of my investment is $3.44. Total.
Here’s what happened. I recently realized that my portfolio account had about $10 in cash—a years-old dividend payment from a fund I had subsequently changed to reinvest them (as long-term investors always should). It seemed silly to request a $10 check just to put it into my savings account, so I decided to roll the dice and buy something. Evidently I was feeling wild that day.
The stock in question, of which I am the proud owner of two—count ‘em, two—shares is Navios Maritime Acquisition Corp. NNA, +2.42% which is evidently in the “marine transportation business,” according to FactSet, which means it owns a fleet of oil tankers and other vessels. I say “evidently” because I didn’t know what the company did when I bought the stock. So help me God, I bought it because it was the first thing I found that I could “afford” with my $10, and because, in the scant research I did, I liked its dividend yield (an admittedly impressive 12.1%, which amounts to an extra dime for me every three months).
It should go without saying, but this is not how you should compile your portfolio.
The way one should put together his or her portfolio, generally speaking, is to load up on low-cost index funds and hold them for the very long term, getting the benefit of compound interest. Index funds track broad parts of the market, and are considered a safer investment than individual stocks by reducing single-security risk. According to data from Charles Schwab, investors have a 40.1% chance of losing money if they hold five stocks, a risk that drops to 25.5% if they own 20 and to 12.9% if they own 40. Index funds, such as ones tracking the S&P 500 SPX, +0.73%give investors exposure to hundreds of names.
When it comes to single securities, your odds of outperforming are even lower. The average stock, when taken individually, not only underperforms when compared to the overall market, but also may even lose out to Treasurys, considered among the safest and most static of assets.
Read more: Here’s why you shouldn’t buy a stock ever again
Now, I knew all that when I acquired approximately 1/75.3 millionth of Navios, but didn’t care because of how small my stake was. It the price rose, then great—although I’d need to see some massive gains to make it profitable, given the $4.95 trading cost (this hurdle is what limited my stake to two shares, and what makes my “plan” particularly stupid). If it went to zero, on the other hand, I’d only be out a couple bucks, which I can live with, given the size of my investment is literally dwarfed by the amount I have in my spare change jar.
What I didn’t expect, however, is how attached I would become to those little shares. In the brief time I’ve held them, they’ve fallen in five of six sessions, losing 4.1%. (On the one day it rose, it really rose, spiking 9.4% and briefly making me feel like Warren Buffett.) The decline amounts to a loss of 14 cents, and believe me I’ve felt every one of those pennies disappear from my bottom line.
I wish I was joking, but for reasons that defy all logic, I’ve become unexpectedly invested in my investment. It bothers me when the price goes down, and I feel an impulse to cut my less-than-an-actual-quarter losses. I feel this even while acknowledging that the moves amount to pennies and that the two shares have absolutely no bearing on my financial stability. Pathetically small though my stake may be, money is still money, and I would prefer more of it than less of it.
My situation is exacerbated by my job, for which I have to watch the market constantly and have gotten in the habit of checking on Navios. This is a no-no. Jack Bogle, the former chief executive of Vanguard, has gone so far as to recommend investors throw out their monthly statements to remove themselves from the emotions that arise from short-term volatility. (With this in mind, I don’t stalk the value of the funds that make up the core of my portfolio, even though they move far more on a dollar basis each day.)
Bogle’s may be an unnecessary step, but emotional trading can sharply reduce an investor’s return. The easy tradability of exchange-traded funds, for example, has been criticized by how they lead investors to overuse, a practice that can cause them to significantly lag their buy-and-hold peers. And as an unmarried man, I’m evidently in the sweet spot for this kind of overconfidence-driven activity. A study from the University of California suggested that single men trade 67% more than single women, reducing their returns by 1.44 percentage points a year.In investing, giving in to your emotions can cut your return by about 1.56 percentage points a year. Should you leave the job to an emotionless robo adviser instead?
With this in mind, I am resisting all urges to disembark from Navios. I will either sail these shares to riches or go down with the ship. I don’t have much choice in the matter, since it would cost me another $4.95 to sell my shares which is more than they’re worth, but I am optimistic nonetheless: The last time I had the idea to buy a single stock, my choice was Netflix Inc. NFLX, +0.77% which subsequently jumped about 3,400% over the following nine years. (Unfortunately, my dad talked me out of this particular investment.) Assuming my record for securities selection remains unblemished, by 2026 my investment will have swollen to… $120.