Multi-tasking. We talk about it a lot these days.
Multi-tasking is the ability to do several things at the same time. It’s not as easy as it looks. Just doing two things at once can be difficult. Look at what has happened to the rate of automobile accidents since we started using cell phones in the car.
It’s easier to focus on one thing and get it right, and the more tasks you add to the list, the harder it is to do any of them well.
I can drive to work with my eyes closed. Well, not literally, but I have been driving the same route since I got my license in 1973. That’s how it is when you grow up in a small town. The route never changes.
However, I have noticed lately that I am not as good a driver as I used to be.
I occasionally slip off the road and pull myself back on, or I ease into the middle more than I should. The odd thing is that I don’t feel like I have lost any of my capacity to drive well.
Some people say that I just can’t drive well while talking on the phone, checking my e-mails and eating breakfast while steering with my knees, but I just say, “Hey, I’m good at multi-tasking.”
Admitting that you are a bad multi-tasker is the equivalent of admitting that you sleep late regularly. It’s just not considered appropriate behavior for a successful person.
That could be why so many individual investors don’t do well.
When you look at an investment opportunity, you have to analyze a lot of different moving parts. You have to look at the price and how it compares to other companies its size and other companies in its industry. You have to be aware of the historical price/earnings ratio. You need to know the standard deviation and how it compares to those different groups. You need to know what company news, industry news and market news might affect the future price. You need to know what world events might influence the price of your security. The list goes on and on.
Some people really enjoy delving into the depths of security analysis. We had a client who enjoyed every aspect of the process. Eventually, he gave up his law practice and joined the industry. For the average investor, it’s just too much to do well, especially if you have a real job that takes you away from your research.
So, many investors just pick one or two parts of the process they can understand and rely on their knowledge of that particular part to make a decision. They may say, “Well, the price is near its 52-week low and their projected earnings are up 15% for the next year. Let’s buy it.” That’s great until you find out that the reason earning projections are up is because they were down 50% last year and the downside of the stock is still another 50%.
If it’s just play money, such as the money you would have taken to the casinos this weekend, then I guess it’s OK to take that approach. But if you are investing for the future, I don’t see why so many investors are willing to commit their money without doing the proper work.
Maybe its time for some investors to come out of the closet and admit that they just aren’t good at processing the myriad components that it takes to make a good investment decision and commit to spending that energy on developing a relationship with someone who can help and doesn’t have another job that gets in the way. It’s not about intelligence or investment savvy, it’s about having the time to focus on what is important in making an investment decision. It’s about driving with your eyes on the road, your hands on the wheel and nothing else on your mind but getting where you need to be.
Contact MBJ contributing columnist Scott Reed, CIMA, CWA, AIF, of Hilliard Lyons, member NYSE & SIPC, in Tupelo at firstname.lastname@example.org.