Sunday, May 01, 2016

When do you decide ?

Repetitive decision making takes its toll on the decisions. The energy levels and time of day when you make decisions also impact the quality of analysis. Researcher Jonathan Levav analysed 1112 parole hearings assigned to 8 judges. The Judge's pace of decision making was grueling with 6 minutes to make a decision. The impact of the study is interesting for the investing world, the chance of a parole being released was as high as 65% in the mornings and after breaks and dropped to near zero at the end of the day, when the will power and energy was sapped. He concluded that we revert to default decision making when the process is repetitive and will power is low.

In the investing world, a person who is regularly taking decision & analyzing the volume of information or reversing his previous inferences will suffer the same behavioral obstacle. Mind is a monkey whose priority keeps changing with times. A learned investor has to chain the urge to change the opinion every once in a while. Give time for businesses to perform once you have made a decision based on wise counsel.

The story on this Stock was based on this principle. Avoid too many decisions or doubts. As you can see form charts the stock did not give good returns for 3 years between 2011 and 2014. Since the decision basis to invest in the stock captured in the Blog written 5 years ago did not change, there was no need to revisit or make new decision. In the period from 2014 to 2016 the stock gave 400% returns. 

We tend to revisit the stocks that we hold if they do not give paper returns in a few months if not week. We must resist this temptation to look at the stock price and continue to look at the fundamentals of the business. Lets move from being Stock investors to business investors.

By investing in such sound businesses, the risk and downside is reduced, when you manage risk, it manages the returns. 

Read more about this here 

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