The hardest part of investing is the ability to do nothing. That’s right, nothing. We as humans are built to make decisions all the time for survival and planning. In fact, it is estimated that a single human being makes on average approximately 35,000 decisions in a day. This number seems crazy high, but if you think about it everything we do requires a decision no matter how routine or simple it may be. Think about it this way, if you were programming a robot to act like a human and do the same daily routines as you do. The robot would have to be programmed to wake up, turn off the alarm, remove the bed covers so it can get out of bed, get out of bed, stand up, stretch, walk to the bathroom, and on, and on. You get the idea. Just something as simple as getting out of bed requires multiple decisions in order to program it into a robot. Many of the decisions we make are subconscious to us, since we don’t think about them, because we have done it for so long. For an infant or child they still have to learn to make these decisions daily.
We are built to do. In order for us to survive we have to do tasks that enable us to eat and live. So for a human to not do anything is hard. It creates a feeling as if we aren’t being productive or moving forward. Humans are goal seeking and in order to attain goals we have to complete tasks to get to the finish line of that goal.
When it comes to investing the best thing to do after a sound investment has been made is wait and be patient. This is very hard to for most as this means ignoring something that is extremely important to you. Our natural instincts want to kick in and complete some form of tasks, or make a decision related to the ultimate goal of our investments. Research has shown that too much tinkering in investing is not as good as being patient. Vanguard performed a study where the investors that had no change to their portfolio outperformed those that did. Research from Mier Stratman showed that heavy traders on average lose 4% of their returns annually to costs and timing, and investors that adjusted frequently underperformed by and hold investors by 1.5% on average annually. These percentages don’t seem like a lot, but over ten or twenty years it becomes significant especially if it is compounding.
So how do we combat these inherent human desires within investing? By using study and research to fend off the urges. Learning slows us down, and makes us ask questions which leads us to more research and study. Reading and seminars are good examples of ways to stave off touching things. Learning is a good solution to a lot of the elements within investing. It combats emotions and corals our thoughts.
Good investing requires an investor to keep tabs on their investments. This means annual or quarterly evaluations of the companies you own. Updating your metrics and studying their activities is important. You have to weed out the noise of the sensationalists when doing this in order to keep your emotions in check and keep a long term perspective as long as the investments are staying realistically within your parameters.