Is it essential to react speedily to every 'breaking' financial news while managing your investments? For all you know it does more harm than good
12-Jan-2018 •Dhirendra Kumar
If you google the phrase 'bias for action', the first result is this: 'A bias for action is one of the most necessary traits for a successful entrepreneur. Studies find that an ability to make decisions quickly and to act upon them is one of the key determining factors differentiating successful people and companies from the unsuccessful'.
That's probably true for most things in life, not just entrepreneurship. Consequently, we can also imagine it to be true in savings and investments. What would the activity associated with investment ideally consist of? I guess most people would think that investing consists of activities like studying investments, choosing them, monitoring them, looking for new ones, weeding out old ones and so on and so forth. That's a lot of things to do. If you have ten or twenty investments, it could almost be a full time activity.
But all this is actually wrong. If I think of the actual activity that should take up most of the time of investors, then it should be nothing. For most - almost all - of the lifetime of an investment, you should be doing nothing about it. The bulk of the activity (although that's not the right word) of investing is waiting - waiting for months and years while your investment grows, powered by the monthly drip-irrigation of your SIP instalments.
Unfortunately, there are far too many people who are trying to persuade you otherwise. Indeed, their living depends on it. Much of the investment-advice industry is busy giving you the impression that investing consists of doing things, and investors who do more earn more. This is the 'bias for action' assumption that I discussed above and is a key belief of the investment business. Counter-intuitively, this is not true for investing. Investors who think that this is true act when they shouldn't and fare worse than their inactive counterparts. As someone rightly said, a bored investor is a dangerous thing!
One driving factor behind this action is also the investment-entertainment industry, which claims to be the investment news media. Any number of business channels, newspapers and websites generate a deluge of information, what they term as news. The impression they try to create is that short-term events matter to investors. This is simply wrong. I get a lot of mails from people asking me for investment advice and for ways out of their investment problems. The problems always arise out of things that the investor did or didn't do over many years and sometimes decades. Not just that, solving those issues always involves taking actions that need to be sustained over years. I never come across someone who has problems with an investment portfolio because he or she didn't stay glued to the breaking news and reacted to developments speedily. Rather, the very opposite is true. Many investors do badly because they pay too much attention to news and react too quickly to these developments, well in advance of the real purport of those events become clear.
Right now, Indian equity markets are at an all-time high. Most investors, especially those who have invested steadily in equity mutual funds, are sitting on humongous gains. It's the kind of time that provokes action, through optimism and a desire to fully take advantage of the situation. Resist the temptation. It's a time to do nothing different, nothing extraordinary. If you are a regular user of this website, you probably already have SIPs running in a few good funds. That's all you need to do. As the Hindi saying goes, 'lagey raho'.