Investment Time Wasters | Part 2
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The Things That Waste Your Time | Part 2
Investment Time-Wasters: Urgency, Correlations and Emotion
Marcus Padley | July 26th 2024 | Education Corner
With Time being so precious I am going to tell you how to save time in the financial markets, because when it comes to the stock market there are a lot of things that waste your time.
If you missed part 1 you can read it
HERE
Urgency
The talking heads in the media speak daily and react by the second. That is their gig. And because of their focus on each 'moment' they will always paint a picture of disaster when the market falls and a bubble when the market rises. They will also miraculously appear to be vastly more intelligent than you or I (well…you) and all of them will have “bought the stock last month” before it went up and “never liked the stock” when it goes down.
But the truth is they are there to further their businesses by looking clever, and the quality of their commentary is, by the nature of their daily appearance, very short term and on that basis, of little value. The fact that some TV programs use a countdown clock to economic numbers, that most of their presenters breathlessly shout, and everything has to be done before it's too late, tells you, this is about trying to generate urgency, and the urgency, I can tell you, does not pay.
If I have learned anything in the stock market game over 40 years, it is that you will not make long-term progress with a short-term focus. You cannot stare at your screens all day and make money. Being first does not matter. Being right matters and in the stock market game the only edge the average individual investor (you) need concern yourself with is on the horizon, there is no edge reacting to breathlessly urgent talking heads. The game is to assess which stocks have a future over years not over the next half an hour. Tomorrow all the urgent talking heads will be over-reacting again. Best you ignore them (me). It is just a commercial show. We are building our brands and wasting your time.
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Correlations
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Some stocks, particularly resources stocks, have extremely high correlations with commodity prices and other stocks with other major share price drivers. Doing in-depth research on Fortescue Metals, BHP, RIO, Whitehaven coal, Woodside and many other stocks is an utter waste of time. You can go and visit BHP’s Brazilian subsidiary and work out the return on capital employed but when the share price is a slave to the iron ore price, the coal price, the copper price and the oil price, you are wasting your time. The game is not to analyse the companies, the game is to second guess the future trend in the underlying commodity prices and, through them, the share prices of these highly correlated stocks.
On that basis most of these stocks are only ever cyclical commodity price led
trades, not investments. If you think you can analyse resources stocks and get an edge, you are wasting your time. And all those broker recommendations using commodity price assumptions to deduce value and a target price, and possibly even a recommendation, as a waste of time when the thing that drives the share price is the trend of the copper price, iron ore price, coal price, oil price, lithium price or any other commodity that changes price tomorrow and changes price daily.
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Emotion
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How many more articles does our industry have to rehash about cognitive bias, emotion and anchoring before everybody gets the point that to be successful investors, humans simply have to put their human traits aside.
You have to be cold about investment and trading, Spock like, logical, unemotional, detached. When you are losing money it is normal to become emotional, but it is pointless. There is no certainty, there is no Holy Grail, there is just a process of narrowing the probabilities as much as possible in your favour and the understanding that once you have done your best to narrow the odds, absolutely anything can happen next.
Humans are wired for hope, to like, to hate. But there are no “good stocks”, or “bad stocks”. This is why Vulcans make much better investors. They are wired to coldly process the information and make a decision, whilst we get confused, depressed, optimistic, pessimistic, we worry about whether we are in loss, or profit, anchoring ourselves to some previous share price that is now irrelevant to tomorrow's share price. These are all things that add no value when it comes to clinical decision-making. There is no liking or hating. What you paid for a stock is irrelevant. The bottom line is, when it comes to investment, being human is a waste of time.
Economists from big institutions
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The essence of investment is what stock you hold and when. But 80% of media focus is not focused on this eternal conundrum, it is focused on what the economists and strategists are saying. So you need to understand this about economists, almost all of them, certainly the well known ones in Australia, are representatives of large product selling institutions.
In Australia the best-known economists are from the major banks and the major fund managers. Understand that each of them has a legion of salespeople behind them whose job it is to sell financial products under the same brand. Because of that they will never, ever, ever tell you to sell.
They have one simple imperative,
calm the clients down, keep them happy, keep them confident, keep them invested in their company’s products. They do that by presenting a calm, intellectual persona that suggests the markets are predictable and understood and there is no uncertainty. On the contrary, the financial outlook is certain and optimistic.
Their job is to keep the clients in, not let them out, and they do that by presenting some level of non-existent certainty. Certainty sells financial products and to project certainty all major economists come over as (more) intelligent, educated, and knowledgeable, than you. They are smart, but what economists and strategists say is not unbiased independent opinion, because if they were to ever say “sell” they would have the thousand product salespeople that work under their brand, most of whom would have sold a financial product to a client the day before, calling for them to be sacked. Because of their education and experience, most economists are interesting, and some are even entertaining, but those economists that have a higher corporate responsibility, are, I'm afraid, a waste of time. Because they are perpetually spreading optimism to dumb the clients down.
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More about the author – Marcus Padley
Marcus Padley is a highly-recognised stockbroker and business media personality. He founded the
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