What do i mean by that ?
The goal of investment is to be able to generate more and more cash. We do not want to go up and down equally or similarly. In the long run, is useless and time wasted. And worst, loses all your capital.
In summary, base lining my profits/losses is resetting my Capital in a regular manner. A fresh start and perspective into my portfolio. And re-evaluating all my holdings.
For example I have 100K capital. Earned 30K by the end of year. In the new year, I have 130K capital. Zero out my profits/losses in every counters. Doing so i am basically treating 130K as my own money from my "saving" account as though is a fresh fund. I do this annually.
Upon doing that, I am resetting my stock initial investment cost to the price of the new year in a new page. And then i re-start to re-evaluate my holdings at this cost level which then kickoff a re-balancing of my portfolio.
This put my thought into a more balance approach with no baggage. To know whether we have execute this mental method successfully, you would have forgotten your initial buy price of prior years like me do.
Ok ! You can call me absent minded. :P
1st Feb 2014