I have been guilty of this many times. I need to consciously tell myself to stop doing it. What it is, is that I usually become fixated on the stock price of a company I’m researching on and this makes me “afraid” that the price will rise quickly before I finish my research on the company. The problem with this mindset is that it causes my research to be hastened and not thorough.
Company analysis can be very time-consuming and it can span a number of market days. During this time, the stock price can rise very fast. (On the contrary, it can fall very fast too but my mind disregards this fact at times.) When I bought Dapai back in 2010, I was guilty of slip-shot research. I didn’t research into the company as thoroughly as I would want to. The reason being I didn’t want to miss the chance of buying the stock at a low price. This caused me to overlook some facts that I found during my research. I felt it will not affect the business overall and thus didn’t investigate into it further. My inadequate research suddenly became gleaming once I bought the business and had ownership in it. Luckily, I realised my mistake early and sold it off for a slight profit. I have blogged about my divestment of Dapai here.
To combat this problem of mine, I have come up with a few things. Whenever I research into a company, I imagine it’s a private business I’m researching into with no shares being traded. This allows me not to think of the price movement of the stock since it’s a “private business”. I have tried this with my latest research on a company and it works. By following this practice of “faking” my mind, it doesn’t allow me to let greed cloud my logic and judgement during research. Also when researching, I give myself one month to do a thorough research to prevent any undue pressure on myself.
I also tell myself not to be greedy and greed is not good unlike what Gordon Gekko says in the “Wall Street” movie. Another way that works for me is to ask myself, “How would I research if I were Warren Buffett?”
Lastly, I have also come up with a plan to research one company I like every one or two months (depending on the company) when the business is still overvalued. Doing this does not allow the price of the business to cloud my judgement as it is not attractive to buy at the current moment anyway.