Wednesday, November 19, 2014

Why does a Common investor always second guesses?

If we ask 100 common investors as to what is their process of selecting an Investment candidate, more than 90 would answer that they don’t have any set process. Whenever they feel like investing they just browse some web site or watch CNBC and just pluck an investment idea from there. So why does this happen???...to get answer to this question , let us analyze a basic characteristic of human psychology.

Let us assume that we are playing a game of estimating commute time for a set of 200 commuters , each having a different route. The details of the commute, traffic pattern and weather are available in a report. But we don’t want to spend time going through it, so we just listen to some “so called traffic experts” and deduce our answer. As the traffic experts change their opinion so do we, it’s because we don’t have any of our own opinion.

Instead if we spend time understanding all the routes and traffic pattern in detail then we can have a better judgment of ours. In this case we won’t have any hesitation of going against the crowd because we know that we have done our homework and can trust ourselves.

The same principle is applied to the Investment landscape. The first step for any common investor is to build knowledge about the businesses that comprise the Investment world. Once he has built that acumen then he will be in a better position to stick to his judgment.