Do it yourself stock investing is extraordinarily difficult because ...

... because the knowledge base required is fairly extensive, complicated and mostly because the feedback loop takes a long time to complete.

As peoples barely removed from the hunter-gather stage of development, as investors we are still barely above our fight or flight method of handling things. Fight or flight is a fabulous mechanism when being chased down by a lion, but not all that great for quelling an emotional response to a stock market beating.

So, while we think we've done a good job analyzing an investment and weighting the odds of success in our favor (both by the investment itself, and by the relative weighting of that investment in our portfolio), we don't have a whole lot more to go on for some period of time. As superinvestor Warren Buffett has frequently noted, over the short term the stock market is an emotion measuring machine, but over the long term it is a weighing machine.

However, we're always looking for the constant feedback that tells us if we're doing something right or wrong. In sports, like soccer, we get very good immediate feedback. If we keep getting beat to the inside by a striker, we learn to back up more, or take better body positioning. After a couple of games and practices, we find it's not happening so frequently.

In investing however, we look for immediate feedback and validation that we've made a correction (or incorrect) choice from the market. Unfortunately, proper market feedback (i.e. the weighing machine, not the emotion machine) often takes several years to materialize. In the interim, we have turned to the measure of observing the daily (hourly?) price change of our securities to provide the feedback loop we desire.

But we really know that this isn't going to work too well. My suggestion would be to turn off your computer and re-visit your holdings every quarter or so. Benchmark it against a comparable investment set. Then give yourself some feedback.

I fully intend to do just this ... but I just need to check my holdings just once more ... or so ...


JW

The Confused Capitalist