Friends,
Tell us if you think this is normal behavior when purchasing a home:
- You spend 6 seconds looking at risks to the home (fire, flooding hazards, etc).
- You clock 54 seconds looking at data like square footage.
- The majority of your time -- 3 minutes and 24 seconds -- is in looking at how the price of the home has changed over the past few days.
Hopefully, you see the absurdity of this exercise. No one would ever buy a home like this.
And yet, two months ago, researchers at NYU published a study arguing this is -- in effect -- the amount of effort retail investors put in before buying stocks for their portfolios.
Specifically, the median investor:
- Spends 6 seconds reading about risks to a stock.
- Clocks 54 seconds looking at fundamental information about the underlying company.
- Looks for 3 minutes and 24 seconds at recent price trends -- particularly within the past day.
Admittedly, this study isn't perfect. These statistics are for median, not mean investors. And these trades are often made for thousands of dollars, not hundreds of thousands of dollars as they are with homes.
All that said, it underscores the dark underbelly of frictionless, no-cost trading: there are no breaks to stop people from making knee-jerk, emotional investment decisions.
Here's the twist: We think six-minute investment decisions are actually possible -- but only when the groundwork is first laid.
That includes:
- Reading through a company's annual report (60-120 minutes)
- Listening to conference calls (60 minutes per quarter)
- Going through earnings reports and evaluating financial statements (60-90 minutes per quarter)
After you do things, you can identify the 3-5 key metrics that are worth watching. When earnings come out, you can pretty easily glance at those metrics and get a good idea of what changes might need to happen in your portfolio.
Of course, that means over the long run, you're spending hours upon hours on each investment. But that's the only sustainable way we know to give yourself a real chance at beating the market.
It's our money & financial future on the line, so it's often worth the extra effort.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long Term Mindset
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P.S. Are you interested in learning how to use AI to enhance your stock research process? Reply to this email with "AI" to let us know.
