Aside from ignorance, impatience is the primary obstacle to investing success. Unfortunately, impatience has never been easier to cultivate.
Efficiency reigns. Screens with innumerable combinations of variables can be performed instantly. Stocks, bonds, commodities, ETFs of every sort and size are for the taking.Trading costs are barely perceptible: spreads are razor thin, commission costs are a pittance, trade executions are lightning quick. Information and markets are always within reach.
How times have changed. Before the Internet, do-it-yourself investing was a time-consuming chore and a monetary expense.
Perhaps your latest print edition (the only edition there was) of Fortune or Forbes would unearth a prospect. More likely, it would be the latest print edition of The Wall Street Journal or Barron's. You'd peruse one or the other and jot prospects in a notebook or a yellow-paper tablet. Then the Journal's or Barron's stock tables would be spread across the kitchen table to screen for more prospects. The screen was limited to what was available in the tables: P/E ratio, trading volume, 52-week prices (high or low), and dividend yield. Stocks that met your criteria or piqued your interest were added to the notebook or tablet.This initial function could consume half a day.
Then after washing your hands of newspaper ink it was off to the public library to glean whatever insight Value Line Investment Survey or Standard & Poor's could impart. Even with the wind at your back – the publications were readily available (not expropriated by another DIY investor) and provided the desired insight and analysis – you could easily kill a full day.
Of course, more work lie ahead.You'd phone your broker (from a land line) and request the latest annual and quarterly reports for your prospects.You might even receive the reports that same week.
Once you had thumbed though the reports, taking time to perform additional ratio or trend analysis (sans Excel), you'd call your broker and place your trade.Your broker would quote you a price in sixteenths (1/16, 3/16, 1/8, etc.). Bid-ask spreads were generous, for the market maker. If you placed a trade,you'd be charged $45 one way.
This all sounds terribly inefficient, and it was. But there was an upside to inefficiency: It cultivated patience and discipline.You bought a stock, and you stuck with it. You stuck with it because you had put legwork into your analysis, which instilled a measure of confidence. High trading expenses further tempered whimsical fancies.
You also stuck with it because you could. You were insulated from an unending volley of noise and opinion.Your information sources were typed on paper and delivered weekly or monthly. They were more reserved. Headlines featuring frazzling words such as “slashed,” “crushed,” “destroyed,” “decimated” were rare.You would go days, weeks, and even months without reading an opinion on your investment.Your nerves were barely stimulated, much less frazzled.
Today, all the information and opinion you can stand is a mouse-click or finger-tap away. Information is pixelated, cheap, and immediate, as is the ability to trade this pixalated, cheap, and immediate information.
Such efficiency is desirable if the price paid isn't too high. Frequently, the price paid is too high, because patience is the price paid. The cheaper the price to trade, the more investors will trade. A plethora of academic scholarship proves the negative correlation between trading volume and investing success.
You could do worse than to narrow your focus or to create obstacles It's always a good idea to set boundaries on when to read information and from whom you will read it. The less barraged, the less stimulated, the more likely investment returns are generated.Trading on rumors, hunches, fears, and inchoate opinions is antithetical to sound investing. And for God's sake, stop checking stock prices every few minutes.
In short, don't just do something, stand there. Cultivate patience. As Warren Buffett aptly noted 24 years earlier, "The stock market serves as a relocation center at which money is moved from the active to the patient." Put yourself on the receiving end.
Efficiency reigns. Screens with innumerable combinations of variables can be performed instantly. Stocks, bonds, commodities, ETFs of every sort and size are for the taking.Trading costs are barely perceptible: spreads are razor thin, commission costs are a pittance, trade executions are lightning quick. Information and markets are always within reach.
How times have changed. Before the Internet, do-it-yourself investing was a time-consuming chore and a monetary expense.
Perhaps your latest print edition (the only edition there was) of Fortune or Forbes would unearth a prospect. More likely, it would be the latest print edition of The Wall Street Journal or Barron's. You'd peruse one or the other and jot prospects in a notebook or a yellow-paper tablet. Then the Journal's or Barron's stock tables would be spread across the kitchen table to screen for more prospects. The screen was limited to what was available in the tables: P/E ratio, trading volume, 52-week prices (high or low), and dividend yield. Stocks that met your criteria or piqued your interest were added to the notebook or tablet.This initial function could consume half a day.
Then after washing your hands of newspaper ink it was off to the public library to glean whatever insight Value Line Investment Survey or Standard & Poor's could impart. Even with the wind at your back – the publications were readily available (not expropriated by another DIY investor) and provided the desired insight and analysis – you could easily kill a full day.
Of course, more work lie ahead.You'd phone your broker (from a land line) and request the latest annual and quarterly reports for your prospects.You might even receive the reports that same week.
Once you had thumbed though the reports, taking time to perform additional ratio or trend analysis (sans Excel), you'd call your broker and place your trade.Your broker would quote you a price in sixteenths (1/16, 3/16, 1/8, etc.). Bid-ask spreads were generous, for the market maker. If you placed a trade,you'd be charged $45 one way.
This all sounds terribly inefficient, and it was. But there was an upside to inefficiency: It cultivated patience and discipline.You bought a stock, and you stuck with it. You stuck with it because you had put legwork into your analysis, which instilled a measure of confidence. High trading expenses further tempered whimsical fancies.
You also stuck with it because you could. You were insulated from an unending volley of noise and opinion.Your information sources were typed on paper and delivered weekly or monthly. They were more reserved. Headlines featuring frazzling words such as “slashed,” “crushed,” “destroyed,” “decimated” were rare.You would go days, weeks, and even months without reading an opinion on your investment.Your nerves were barely stimulated, much less frazzled.
Today, all the information and opinion you can stand is a mouse-click or finger-tap away. Information is pixelated, cheap, and immediate, as is the ability to trade this pixalated, cheap, and immediate information.
Such efficiency is desirable if the price paid isn't too high. Frequently, the price paid is too high, because patience is the price paid. The cheaper the price to trade, the more investors will trade. A plethora of academic scholarship proves the negative correlation between trading volume and investing success.
You could do worse than to narrow your focus or to create obstacles It's always a good idea to set boundaries on when to read information and from whom you will read it. The less barraged, the less stimulated, the more likely investment returns are generated.Trading on rumors, hunches, fears, and inchoate opinions is antithetical to sound investing. And for God's sake, stop checking stock prices every few minutes.
In short, don't just do something, stand there. Cultivate patience. As Warren Buffett aptly noted 24 years earlier, "The stock market serves as a relocation center at which money is moved from the active to the patient." Put yourself on the receiving end.
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