You Don't Need To Know Everything About Everything
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You Don't Need To Know Everything About Everything A bivio customer recently made this comment to me about her personal financial situation: " We feel paralyzed to make a change or decision many times because of conflicting info or info overload.". It's true. It can be overwhelming. But you need to put it in perspective. You don't have to know everything about everything. If you decided that you were going to invest by purchasing businesses in your town, you wouldn't start by buying every one. You'd decide what your goals were, evaluate businesseses to make sure you knew which one might help you achieve those goals, determine which one was a good value and then make an investment or an initial investment. Once you owned it, you'd continue learning more and more what you needed to know to make sure it was producing a good return for you. You'd stay engaged with your investment by actively following how it was doing. If the one investment succeeded, it might encourage you to make others until you had a managable size portfolio that was producing good returns for you. Then you would spend most of your time keeping up on what you owned, not looking for new things to purchase. Probably all your choices wouldn't be equally successful, but, over time, if you were more were successful than not, you'd come out ahead. Most importantly, you would do something. Rather than just read and feel paralyzed and overwhelmed, you'd help to get over your fear by trying something. Jumping in focuses your attention on what is and is not important. I'm a gardener as well as an investor and I learned long ago that if I read enough gardening books, I'd eventually find conflicting advice about almost everything. What has worked best for me over the years is to just put seedlings in the ground. If you don't at least do that much, it's a guarantee you won't get any flowers. You learn how to nurture them and become a better gardener by focusing your efforts on what is really there, not on what might be there or what you might be missing. Jump in. Build up a portfolio of companies that you know really well. Buy and sell their stock when your knowledge lets you know their value is too low or too high. Keep up on how they are doing, even when you are not immediately invested in them. You don't need one of everything to have a good portfolio. You just need enough, some variety and the time to keep up on how they are doing. If you're new to investing, buy a small amount of something and spend your energy learning a lot about it. If you've been doing it for a while, put less effort into looking for new things to buy and focus on knowing about the companies you already own. Hold them for as long as it makes sense. If it's time to sell, don't forget about them. You've already put in the time and effort to understand their businesses. Keep up on how things are going for them and purchase them again when their prospects look better. You'll feel less overwhelmed if you're really engaged than if you're just trying to read about everything. That's one of the benefits of being in an investment club. You can start making real investments in small amounts but you can share the risk of making mistakes as you're learning. It's fun to share the experience with with friends that are interested in learning about investing also. So don't waste time and energy with feelings of being overwhelmed. Get yourself actively engaged. You don't need to know everything about everything to get started. One of my favorite books is "The Creative Habit" by Twyla Tharp. In it she discusses how you need to just start when you want to get something to happen. If you wait until its a good time to begin, it will never come. If you just jump in, you'll get started and the beginning will become clear as you go. So go for it! Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe WOW Lauri great comment it should be covered by every investor On Thu, Aug 23, 2012 at 12:17 PM, Laurie Frederiksen <laurie@bivio.biz> wrote: A bivio customer recently made this comment to me about her personal financial situation: Thanks for the perspective, Laurie. Analysis paralysis is a common ailment for investors, in general, and clubs, in particular. I've often heard the joke that clubs lean toward the buy and hold approach because there are so many opinions, they can never get a consensus. Experience has taught my club two important lessons.
First, having a written plan and checklists helps to keep us on track. And over the years,we've discovered that less is more. Club members have a tendency to bring every detail about a company to the table. It's called plop factor. Some believe that the more they put in their report, the more impressed others will be with their efforts. If you stop and determine exactly which factors cause your club to buy or sell a stock, you can whittle down the list to mostly those metrics. So for example, if you do not factor into your buying decision what percentage of sales is currently coming from Brazil, or how much stock the CEO owns, you are heading for information overload.
Second, I find very few investors or clubs who track and analyze their trades. This is such a simple way to improve your returns. Create a worksheet that contains a check list of the current metrics (of your choice) at the time of purchase. Make sure it has room for a thesis that outlines your reasons for buying the stock. This can be a couple of sentences, but the more detail, the better. Then, leave room on the back for some current metrics at the time of sale, as well as a thesis for that sale. Taking time to analyze this information is invaluable. Your buy thesis will help you eliminate metrics that are time wasters for you. Your sell thesis, if it seems redundant, could very well reveal which mistakes you are repeating. At the very least, it will send you in the right direction.
Ultimately, after familiarizing myself with a potential investment, there are only a small handful of metrics that go into my decision to buy or pass on a company. If you can home in on yours, or the club's, you can reduce the analysis paralysis trap.
Have a great day. Lynn Ostrem, President Crow River Investment Club
Thanks Lynn, I love the phrase "plop factor". I hope you won't mind if I steal it. During some club discussions I've also thought about it as "Parameter of the week". Bits of information can sometimes parachute in and radically affect judgements. They seem to develop increased importance just because they are new. Your point about keeping track of the judgements you made when you made a decision and then assessing the situation in the future against them is a very good one. It really helps focus future discussions. I also think people try and look at too many companies. In my opinion it's better to know a few very well than to have little knowledge about many. If you like a company but have sold it for some reason, it does not necessarily mean you should forget about it. Keep following its progress, just like you follow the companies you currently own, and you might see opportunities to get back into it. You'll be that much further ahead because you understand what is important to track about it as an investment. It takes less time and energy to track something you already know and understand than it does to continually have to learn all about a new business. Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe |
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