Monday 5 September 2011

How To Sit On Your Hands

Not literally, of course - although that would help to keep you out of trouble - but a lot of the time for a DIY Income Investor there is not a lot to do. And, what is more, it is usually a good thing to do less trading rather than more, as studies have shown that over-trading leads to poor results.

So, figuratively sitting on your (trading) hands is an activity that you will need to learn to do, although it might seem a little boring..

For example, research from Finland shows that the least frequent traders among households earned average monthly gross returns of 2.36%. The household investors who traded the most frequently earned 1.10%. The conclusion of this study was: "Overall, the results suggest that a significant fraction of household (...) investors trade far more frequently than they rationally should, and that this excessive trading has a substantial negative effect on their portfolio returns."

This phenomenon is reflected in research elsewhere.

Over the recent market downturn since April I have not bought or sold anything. Although the capital value of my portfolio has taken a hammering, the income has actually risen slightly. Which is nice.

Although this inactivity might seem boring, this doesn't mean I have been doing nothing. Some of my favorite activities include:
  • reading articles and blogs related to Income Investing
  • assembling and reviewing a 'watch list' of possible investments
  • updating and refining my portfolio spreadsheet (a perpetual task)
  • reviewing portfolio performance (and reasons for poor performance)
  • writing this blog
  • devising ways to further reduce daily expenditure (least popular with the family!)

Above all, my favorite (non-trading) occupation of all is listening to the humming sound of my money working hard for me (like a hive of bees) - and watching the income come trickling in.

So, the message is: sit on your hands - until you have found a really good 'buy' or 'sell'.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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