Procrastination - The Investors Friend?

"Nothing is so fatiguing as the eternal hanging on of an uncompleted task." - William James

Procrastination is loathed by society.  Psychologists try to rid people of the problem and in the investment world it is often seen as a better option to jump before making sure that all the research is done - rather trade than miss the trade altogether.  But it appears that modern society has taken the need for action too far.  Our lives are filled with devices that demand but do not require instant response and more and more people are living with this burden which is taking away their ability to think rationally and this is feeding into their investments with disastrous consequences.

Take for example the cell phone.  We can text, take calls and receive messages; we can look up the answer to any question instantly on the Internet and it ensures we never get lost, plus we can take a picture of the view once we are there and instantly broadcast it to all of our so called friends.  This one device has taken control of our lives and it is feeding into all we do.  How many times have you been in a conversation when someone hears a buzz on their phone and either takes the call or stops to read a text?  The entire conversation is broken by this intrusion and the thought process is lost.  Not only is it rude but it has ruined any logical process associated with the prior discussion.  Now as with everything there are exceptions to this but by and large the majority of these interruptions are noise.

The same is happening in investing.  Noise is taking over people's ability to focus on the real issues and instant action is required which most of the time results in a poor outcome or huge fees.  Far better to give the noise time to dissipate.  We as humans are poorly wired to make rational decisions based on short term inputs, we are far better at basing investment and other decisions on the important facts after the dust has settled and the noise has died down so often times giving it a little time is a better option.

Now the issues is the that some times the decision is required to be made in short order so how to decide when to wait and when to act?  In reality it is not that difficult.  Take the example of a broken arm versus moderate back pain.  The first requires immediate attention while the later often times is fixed with some exercise or rest and normally does not require a spinal fusion.  Or how about making sure you get to the airport early so that you do not miss your flight?  Unless you own the plane procrastinating about this is not a wise decision.  We are mentally wired to make the determination as to which decisions require our immediate attention versus which do not however the increase in the level of noise is starting to distort our natural filters.

In the investment world it is normally better to take the time to prepare and do your homework rather than act.  Take the idea of a "hot" tip; if it really is going to go to $1,000 a share from $1 then there is plenty of time to do your research and buy the stock.  Sure you will have given up some bragging rights but if you get in at $20 you will still be in a great position..  If the market were to crater 5,000 points tomorrow it would not be the time to dump every stock that you own as the damage is already done; a better solution would be to survey the damage and selectively determine how to react.

Taking this a step further and looking at the Federal Reserve they have definitely bought into the requirement to act.  Following on from last week's blog on GM I wonder if they really would have jumped in to save the company had they taken a little longer to decide.  Now at the time that they made the decisions there was a lot of noise from the general public to act and action was required.  The financial markets were broken and it was their job to maintain some kind of order in these markets but the question is whether they made a rational decision or acted on noise and you know my answer.

So while I am not advocating that everyone sit on the fence forever preparing, I am advocating that people take a little more time to make their investment decisions and spend more time making sure that their overall portfolio is tailored to their requirements rather than trying to chase another "hot" opportunity.  With markets continuing their ascension to new all time highs you will be far better served spending time preparing for and avoiding any future meltdowns than trying to prosper by trading the noise.