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Tuesday, December 15, 2009

Become a better investor by overcoming procrastination

What is procrastination, and why should an investor spend time and effort in overcoming procrastination?

There are two types of procrastination. One evolves out of habitual laziness and indiscipline. We put off doing tasks which we don't like to do because we find them distasteful or time consuming, or feel that we may be incompetent to perform the task to the satisfaction of peers/colleagues.

At some point in time in our lives, whether completing an assignment at school or college, or dealing with some problem at home or at our place of work, we are faced with situations which our instinct tells us to avoid. We may know that by delaying action, the problem may get worse. Still we leave it till the very last moment. Then the time pressure of completing the task creates additional stress.

The best and only way to overcome such procrastination is to convince yourself that if something needs to get done, it should be done now rather than a few days later. The corollary to this self-discipline is that if a task is worth doing - however distasteful it might be - it is worth doing well.

Now think about the average investor (if there is such a being!). He is probably your friend or cousin, and has been investing in mutual funds or stocks for a few years. How knowledgeable do you think he is about the market? About fundamental and technical analysis? (You only need to ask a few pointed questions to find out!)

Chances are that he is too busy with his daily activities to read or learn about investing. Some of the excuses may be: Fundamental analysis is too time consuming; there are thousands of shares - which ones to analyse? Technical analysis doesn't work - I've tried it and lost money. It is all about buying low and selling high, which any one can do without any analysis.

To be a successful investor over the long haul, you need to learn all about how the market works, how the economy, interest rates, forex rates affect stock prices, which companies/funds are good for the long-term portfolio, which companies/funds are only good for a short-term bet.

If you haven't started the learning process yet, the time to start is now. Not tomorrow, or the day after. If building wealth from the stock market was easy, the whole world would be doing it and the whole world will be full of wealthy people!

And here is a little-known secret that I will share with you. The more you learn about the market and how to analyse stocks, the better investor you will become. The better your chances against the average investors who are too lazy and indisciplined to make the effort. Because every time you buy and sell, there is a person at the other end of the deal who loses money or makes a smaller profit than you.

There is another type of procrastination, and that is a more insidious and tougher trait to overcome. There are some people that are excellent in planning and analysis. But when it comes to acting and putting the plan to work they get cold feet. They want to wait some more.

For investors, this kind of procrastination needs to be overcome quickly or it may become a disastrous behavioural trait to have. You may wait too long for a trend reversal to happen, for prices to drop (or rise) another 20% before buying (or selling), and miss a glorious opportunity.

This problem often gets compounded by a desire not to miss the bus, and you end up buying or selling too late - long after the window of opportunity has closed. There is a fine line between this kind of procrastination and patience, and as a smart investor you need to identify the line as early as possible.

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2 comments:

The Visitor said...

Wonderful post Subhankar! The beauty is that it is generic as to be applicable in any domain.

Hats off. :)

Subhankar said...

Appreciate the feedback.