Avoid getting anchored to cost price bias when monitoring portfolio performance.
As an existing holder who is holding the stock from lower levels, because of way I track portfolio (cost price driven), I will miss that the stock has done nothing for last 3+ years
This approach misses the
- huge relative underperformance even against index, let alone other stocks
- opportunity cost of not deploying capital effectively
So I think we should listen to William O Neil and not track portfolios like this, here is what he wrote in his book
“To help you avoid the price-paid bias, particularly if you are a longer-term investor, I suggest you use a different method of analyzing your results. At the end of each month or quarter, compute the percentage change in the price of each stock from the last date you did this type of analysis. Now list your investments in order of their relative price performance since your previous evaluation period. Let’s say Caterpillar is down 6%, ITT is up 10%, and General Electric is down 10%. Your list would start with ITT on top, then Caterpillar, then GE. At the end of the next month or quarter, do the same thing. After a few reviews, you will easily recognize the stocks that are not doing well. They’ll be at the bottom of the list; those that did best will be at or near the top. This method isn’t foolproof, but it does force you to focus your attention not on what you paid for your stocks, but on the relative performance of your investments in the market.”
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