Paralysis of Information

You miss 100% of the shots you don’t take.

How do you make financial investment decisions? For many of us, the process of making a financial decision involves researching the available options. But can we fall into the trap of having too much information? We can. And this is the paralysis of information.

When you are starting out anything new, you always want to do research to find out a bit about your new endeavor. Investing is no different. But with investing, the options are nearly endless, and in that ever expanding universe of stocks, bonds, mutual funds, ETFs, derivatives, options, dividends, interest rates, etc we can find ourselves quickly overwhelmed. In this state, rather than follow through with our original good intentions, we hesitate, we become paralyzed by information.

To illustrate this point, we can look at the steps we need to take to learn a new skill. As we learn something, such as driving, the list of steps and elements we need to remember is overwhelming. Turn the ignition, put the car in reverse, release the parking brake, ease off the pedal brake, slowly apply gas, turn the wheel, brakes, change gear, check mirrors, signal, check mirrors again, ease off the brakes again, apply pressure to the gas pedal, turn off indicators, check mirrors again.

When we look at a list of what we need to do, the process seems alarmingly complicated. And that’s if we already have an automatic-transmission car. But for many of us, driving is second nature now, so much so we have the confidence to talk and eat while driving too. How did we get to that stage of knowledge and familiarity that we can approach any vehicle? By actually driving. We overcame the paralysis of information by taking action. And our decisions and choices got better over time.

The same applies for financial decisions, especially investing. As we begin our research, we will undoubtedly come across talks of management fees, market swings, dividend yield, historic growth, and many other elements that help us evaluate different investment options. These are all incredibly important to know when making a decision. Charting these elements for the available options is an effective way at determining what investment will be right for you. But the most important part is taking action. As you make more investment decisions, you become more familiar with the elements that are important to you. And as a result, you make better decisions.

 

Application Steps:

How do we overcome this paralysis of information?

  1. Set a deadline for when you will have research conducted by.

  2. Perform research up to that deadline.

  3. Make the best decision you can with the information gathered in your research. You won’t have all the information right now, and you never will. The most important aspect is that you make a decision.

  4. Take action! Now, today, right this minute!

 

What decisions have you been putting off because you don’t have all the information? Set up a deadline for how long you’ll allow yourself to research. Then research until that deadline. Finally, on that deadline, a decision must be made based on the currently available information.

Remember, not making a decision is still a decision. And that inaction costs far more than any investment fee or poor market timing.

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