The following headline was taken directly from the Associated Press;
NEW YORK (AP) -- A year after the stock market began its comeback from 12-low, investors are looking for the next big thing.
I have always been fascinated by this psychological aspect of the market. I just happened to grab today’s headline, but this could be any normal day on Wall Street. Perhaps I should just understand that this is trivial media coverage and simply ignore all together. Yet I can’t help but think that this is the way the majority of investors process information. Why would anyone ask a question that is completely unknowable?
Of the many pitfalls we face as investors, asking the wrong questions is a big one. We all know the usual suspects; “where’s the market heading?”, “what’s the next hot stock?”, “where should I invest today?” I can’t tell you how often I get these questions. And it’s usually from thoughtful, intelligent people. Certainly we want to be informed.
As one embarks on any decision making process, whether it’s picking a vacation, buying a car, or in our universe – making an investment – it is crucial to be focused on only the pertinent information. Ironically, the biggest mistakes result not from having the proper answers, but rather a failure to ask the correct questions. In our quest for understanding, looking for answers appeals to our sense of certainty. It makes us feel as if we have control of the situation. Getting a quick and dirty answer to a tough question is easy. Asking thoughtful questions is a much harder task.
Returning to that eternal question of the market’s direction or which is the best stock to buy now- my answer is simple. You’re asking the wrong question. Looking for hot tips on the next Microsoft or whether or not we’re in a bear market is a waste of valuable time in my opinion. Unfortunately, most of the time, the answers we seek are completely unknowable. Why – because they’re completely dependent upon some vision of the future.
I have long believed that this error in human judgment is very costly not only because it leads us down a pointless path, but also diverts our focus and energy from areas which need basic attention. Current events provide a perfect example of this concept. The following is an excerpt from a few years ago –
Perhaps politicians should spend their idle time developing a comprehensive energy policy rather than wasting time questioning corporations earning profits due to a long embedded supply / demand imbalance. It shouldn’t come as any surprise as these are the same individuals who have wasted tax-payer money on countless other ineffective proceedings.
Staying focused on areas where we have at least slight control is a much more productive endeavor. How do we find companies that generate true economic wealth over our lifetime? Have we put enough thought into proper investment allocation? Have we clearly defined how intend to manage risk? These may be difficult questions to ask ourselves. First, these questions require us to do our homework. Second they might evoke emotions that are difficult to face and lastly there isn’t a quick sound bite answer. Yet an appropriate focus may provide profitable answers to difficult questions.
NEW YORK (AP) -- A year after the stock market began its comeback from 12-low, investors are looking for the next big thing.
I have always been fascinated by this psychological aspect of the market. I just happened to grab today’s headline, but this could be any normal day on Wall Street. Perhaps I should just understand that this is trivial media coverage and simply ignore all together. Yet I can’t help but think that this is the way the majority of investors process information. Why would anyone ask a question that is completely unknowable?
Of the many pitfalls we face as investors, asking the wrong questions is a big one. We all know the usual suspects; “where’s the market heading?”, “what’s the next hot stock?”, “where should I invest today?” I can’t tell you how often I get these questions. And it’s usually from thoughtful, intelligent people. Certainly we want to be informed.
As one embarks on any decision making process, whether it’s picking a vacation, buying a car, or in our universe – making an investment – it is crucial to be focused on only the pertinent information. Ironically, the biggest mistakes result not from having the proper answers, but rather a failure to ask the correct questions. In our quest for understanding, looking for answers appeals to our sense of certainty. It makes us feel as if we have control of the situation. Getting a quick and dirty answer to a tough question is easy. Asking thoughtful questions is a much harder task.
Returning to that eternal question of the market’s direction or which is the best stock to buy now- my answer is simple. You’re asking the wrong question. Looking for hot tips on the next Microsoft or whether or not we’re in a bear market is a waste of valuable time in my opinion. Unfortunately, most of the time, the answers we seek are completely unknowable. Why – because they’re completely dependent upon some vision of the future.
I have long believed that this error in human judgment is very costly not only because it leads us down a pointless path, but also diverts our focus and energy from areas which need basic attention. Current events provide a perfect example of this concept. The following is an excerpt from a few years ago –
Perhaps politicians should spend their idle time developing a comprehensive energy policy rather than wasting time questioning corporations earning profits due to a long embedded supply / demand imbalance. It shouldn’t come as any surprise as these are the same individuals who have wasted tax-payer money on countless other ineffective proceedings.
Staying focused on areas where we have at least slight control is a much more productive endeavor. How do we find companies that generate true economic wealth over our lifetime? Have we put enough thought into proper investment allocation? Have we clearly defined how intend to manage risk? These may be difficult questions to ask ourselves. First, these questions require us to do our homework. Second they might evoke emotions that are difficult to face and lastly there isn’t a quick sound bite answer. Yet an appropriate focus may provide profitable answers to difficult questions.
