Why Fewer Investment Decisions Can Actually Lead to More Money | Personal Finance

(Matthew Gutierrez)

Less is more: Sometimes, what you don’t do is just as important as what you do.

Wall Street benefits from trading activity, which means it needs a reason to make a lot of changes to your portfolio. Some investors believe that by moving money from one investment to another, they outperform the market by making hundreds of investment decisions each year. The problem is that all these activities and decisions are not about generating good returns.

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Lessons from baseball: You don’t need to swing that much

Warren Buffett took a big part of his investment strategy from baseball Hall of Famer Ted Williams, he writes The science of hitting. Williams believes that to be a good hitter, you must avoid swinging yourself on bad courses—you’re looking for the perfect course in your cab. Warren likens investing to: In investing, you can stand on a plate all day waiting for the right investment opportunity.

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“You don’t have to make any decisions,” Buffett once said. “Nothing is imposed on you. They may be good shots to swing, but if you don’t know enough, you don’t have to swing.”

There are too many decisions and the idea is that you end up being a juggler with too many balls in the air. You don’t just lose one — you lose them eventually.

In my own investing journey, investing too much has proven costly. Sometimes my friends and I would pressure each other to make investment decisions, either because other people benefited from the trade or because a stock was praised on TV. But we didn’t do the due diligence and research we should have, and we ended up suffering significant losses. Lessons for us? Be careful, be wise, and understand that sometimes, the best course of action is to do nothing until you know more.

What does this mean for your portfolio? That could mean little or no buying or selling of stocks for days, weeks or months. This could mean averaging the dollar cost into your most convincing name. This could mean simply getting out of your account and enjoying your life, avoiding the urge to move in and out of positions on a regular basis. Or it could mean jotting down a plan at the start of each quarter and identifying a series of investment decisions you’ll be making during that quarter. For example, once you’ve invested in 10 stocks, you might tell yourself that you won’t buy any more until the next quarter.

Fewer decisions help fight choice overload

Too many choices can lead to overwhelm and the inability to make the right decisions. But don’t just get it from billionaires who invest. Steve Jobs wore the same black turtleneck and jeans every day. Former President Barack Obama wore only a gray and blue suit to “decision less”, freeing up his cognitive abilities to make important, high-consequence decisions. “You need to focus your decision-making energy,” Obama said. “You can’t be distracted by chores all day.”

Overchoice, or choice overload, is defined as a cognitive impairment that makes it difficult for people to make decisions when faced with many choices. Trading stocks on your phone has never been easier, with thousands of stocks to choose from flashing on the screen. It’s easy to fall into over-choice and feel like you need to make a lot of decisions to make money.

Charlie Munger says the key to his success is “sit back and wait,” another way of saying that you’re better off buying and holding quality assets than buying and selling in bulk trying to predict market trends.

The calculation is clear: reducing the number of shares you buy and the number of times you buy and sell is likely to lead to higher returns. Keep in mind the philosophy of the Motley Fool is to hold and diversify for the long term (25+ stocks) as it helps isolate your portfolio while minimizing risk, especially in times of uncertainty like now under market conditions.

But get it from the best investors: Making a smaller number of high-quality decisions on these 25+ stocks can help you invest with a clearer mind.

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