Here's a great article sent in by a reader that I've been meaning to post on for some time now. It deals with time -- the amount of it we spend on managing our finances as well as how to use it to maximize our investment returns. Here's an overview:
How much time do you have? If you are like most people, the answer is probably "very little to spare." You spend most of your day earning a living. You then spend what little time remains trying to enjoy it with friends and family.
Now let me ask you a slightly different question: How much time do you spend planning for, and managing, your investments?
For too many people I've encountered over the years, the answer is "not nearly enough." Too many investors do not put a commensurate amount of time into keeping what's taken them so much time and energy to earn. Some studies have found people spend more time planning a week's vacation than they do their retirement.
Before the piece gets to suggested recommendations, he covers the daunting task that individual investors have to face:
You are competing against some of the smartest and best-equipped traders in the world. They work 24/7 to uncover an edge. These are people who are at their trading turrets at 5:30 a.m., who work 12-hour days doing the same homework that you might be spending a few hours a week on.
If the guy on the other side of the trade -- the sell to your buy -- is spending far more time investigating a given company, sector or market, that stacks the odds against you.
So what's the answer for the "little guy"? His suggestion:
A key question all investors must ask themselves is, "Does my investing style match my available time?"
If you find yourself somewhat harried when it comes to your investments, the likelihood is that you have too little time for your adopted style. Your options are simple: find more time or adapt a style more suited to your time available. For most people, that means shifting to an investing style that is less time-consuming.
Investors sometimes forget that there is a spectrum of investor commitment: At one endpoint is someone who hires a professional to do it for them. At the other end of the spectrum is someone who spends every waking moment thinking about the market, looking for opportunities, doing massive amounts of research, watching every tick. You are most likely somewhere in between these two extremes. Matching your place on this spectrum to your time is the key to stress-free investing.
The piece also includes a nice table that shows the author's estimate of how much time is required for the most common investor styles. It is something that will help you determine which investment style fits into your available time.
Finally, he ends with the payoff:
Adopting an investment strategy that requires more time than you can commit to is a surefire path to disappointment. Find a strategy and style that you can live with -- both intellectually and scheduling-wise. Make an "honest self assessment" of your resources.
This is one of the easiest mistakes in investing to make -- and to avoid.
I must admit that I bounced around from style to style for years because of this issue -- I wanted to invest a certain way, but I didn't have the time for it. So I did it poorly and as a result my returns suffered. Today I invest primarily in index mutual funds. They are simple, have a solid return, are low cost (which helps the return rate), and fit into the time I have to manage them (very little). So far, this strategy has worked well for me and I plan to continue it for the foreseeable future.
I would suggest you to read the Book "Buffett, the making of an american capitalist". Warren, ever the greatest investor, spends very little time looking at any quotes at all. It almost seems he has too much time, reading away annual reports for fun most of the time. The sure fire way to invest for me, is value investing. Knowing the intrinsic values of the company, buy it when the price drop below 1/3 of the intrinsic value
Posted by: javasoy | October 10, 2005 at 07:29 PM