Financial Disease 3: Over or Under Analysis Paralysis

14 Oct 2019by Research and Ranking

Financial Disease 3: Over or Under Analysis Paralysis

Let me rewind to our childhood days – the golden days of Doordarshan when there was probably only that one news bulletin that used to come at probably 9 PM every evening and our dads would want to watch it regularly.

 How many of us allowed that? Not me for sure! It was something we these days call it “Family Time”.

 And then, in the morning, he would spend time to go through the orange/peach newspaper for his information and talk to his financial advisor once a while for more information on his investments.

 Coming to today, we have over 400 news channels, 1 lakh publications, mobile news apps, stock ticker apps, and a lot more providing us with non-stop information on everything starting from the global economy to the live prices of the stocks we own.

 There is an interesting quote, which I thought must share with you “Too much of anything is poison”.

This information overload due to multiple sources providing a high quantity of news often leads to ‘over-analysis’ leading to confusion and chaos in the minds of an investor. 

How Information Overload Leads To Over-Analysis?

Remember the law of diminishing returns? The same applies here. Too much information at some point begins to have the opposite effect. 

On top of information overload, investors are also subjected to a lot of biased information. This includes buy or sell recommendations because markets are going to go up or down. Here, irrespective of whether you make profits or not, the broker definitely makes money on brokerage.

Lastly, there are rumors which often cause investors to panic and sell-off their investors. Remember how the stock of Infibeam Avenues crashed by 70.24 percent on 28th September 2018 over the previous day’s closing price due to a social media message.

When it comes to analysis before investment, many investors often end up doing much more than what is necessary for an attempt to cover everything possible. 

Let me reminisce about the quote by Bruce Lee - “If you spend too much time thinking about a thing, you’ll never get it done.”

While on one side, we have investors who indulge in over-analysis, many investors under-analyze their investments. These investors look at only two things; brand name and how it has performed in the past.

They hardly bother about the debt levels of the company or the quality of the management. Reliance Power, Unitech, Suzlon Energy, Aban Offshore and Jaiprakash Associates are some of the classic examples of much-hyped stocks that destroyed over 90% of investors’ wealth. At one point of time, these stocks were everywhere, regularly featuring in top gainers and volume toppers, which attracted investors to them. 

Thus under-analysis often leads to wrong investment decision which in-turn results in huge losses.

Balance Is The Key

While investors who over-analyze their investments, end up missing out on investment opportunities, investors who under-analyze end up with the wrong investments.

In today’s world, where there we are constantly bombarded with information, it is for us to decide when to say “Enough!” 

I agree it can be quite tough to take a call on where to stop. However, here are few ways to take the right investment decision:

    • Focus on the facts
    • Exercise restrain & engage patience 
    • Get expert advice
    • Focus on what really matters
    • Develop critical thinking skills

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