Knowing More Will Hurt You in the Stock Market

Stock research could be enervating. The classic analyst tracks and studies several indicators before picking a stock, yet the work never seems to end. That should not be surprising. Listed companies have businesses and operations so widespread and multifaceted that no time is sufficient to make up your mind. That’s what gives rise to “analysis paralysis”—you become so entangled in analysis that you can’t make a decision. 

In spite of this, broking firms spew out stock recommendations, thanks to the pressure to deliver. But that’s a different problem; let’s leave discussing it for another day. Let’s come back to analysis paralysis. The core of the problem of analysis paralysis is trying to know too much. And that’s a vicious process. The more you know, the more you want to know and the more confused you are. That’s natural as well. No company is free from problems. All have their strengths and weaknesses. Once you start focusing on the weaknesses, you will find more and then even more. Eventually, you decide to shun your stock and move on. But you wonder when that same stock becomes a multibagger.

Financial parameters aren’t flawless either. Each has its drawbacks and frequently they fail to capture the reality. Sometimes they are even manipulated. So, tracking multiple financial parameters also doesn’t help as eventually they will throw conflicting signals.

In the stock market, you never have full information. The decisions have to be made amid healthy uncertainty. Of course, you have the past financials, forecasts, management outlook, peer views and so on, but the more you focus on them, the more you distance yourself from making a timely call. Little surprise, one of the secrets of successful stock-picking is “picking” the stock.

To do so, you have to deliberately cut your information intake. Yes, don’t look for more data. Rather, cut the existing sources. Knowing more is counterproductive to stock-picking; it’s not the other way round. What’s important is that you make a timely judgment. The next important thing is to stand by your stock. Don’t let the ever-present barrage of information affect you. Learn how to ignore.

Remember that wealth is made in the stock market by picking winning stocks and standing by them, not through endless research.