DEALING WITH AND CONQUERING ANALYSIS PARALYSIS:
What is Analysis Paralysis?
‘Analysis Paralysis’ is a phenomenon that plagues nearly every single one of us, regardless of the situation. At its crux, ‘Analysis Paralysis’ occurs when an individual (or group) is unable to take a decision within a fixed frame of time due to overanalyzing or overthinking.
It is beyond doubt that the best outcomes are generally a result of decisions made by properly analyzing data. However, the line between ‘good (proper) thinking’ and ‘over thinking’ is not particularly clear.
In the investment process, ‘Analysis Paralysis’ is an under spoken yet crucial factor in the investment decisions that are made. The inaction it causes inadvertently leads to losses or missed profits.
While it can occur in any situation, it seems to be rampant amongst the investment community. I beg to ask ‘Why?’.
Here are my two cents.
The stock market is driven by an unfathomable number of variables, of which only a handful can be covered via extensive stock research. For the ones that remain, we, as humans, hope to find the answers in other ‘people’ through newspapers, social media outlets, TV anchors, friends, colleagues, etc, who in turn are looking for answers in ‘others’.
This cycle tends to be incredibly noisy and is one of the major causes of ‘Analysis Paralysis’ in the market.
How can we try to control this tendency when investing?
- Undertake your ‘own’ extensive research. This helps build a base for ‘your’ conviction.
- Understand that there is no ‘know-it-all’ out there. For every buyer there is a seller and vice-versa. The market runs on divergent views. While this goes against our natural thirst for more information, avoid using too many data sources. Stick to a few that you believe in and understand. This will prevent you from getting too overwhelmed.
- Having a good ‘Margin of Safety’ [Note: Buying companies that trade well below their intrinsic value based on your research] will help you account for these uncaptured and unanswered variables.
‘Nothing will ever be attempted if all possible objections must first be overcome.’ – Samuel Johnson
I hope that I have been able to give you the right tools to overcome ‘Analysis Paralysis’. On a personal note, when I occasionally experience ‘Analysis Paralysis’ in my investment journey, I always go back to this simple quote by Harold Geneen which helps clear my mind and get myself back on track. I am sure it will help you too!
‘Better a good decision quickly than the best decision too late.’ – Harold Geneen
I made the visual content using ‘PiktoChart’ (https://piktochart.com/). As someone without any real visual content creation knowledge, I found their tools to be incredibly easy-to-use and highly intuitive! This is not a promotion, it is just my personal opinion!