Overview – Being a Picky Investor Isn’t Necessarily a Bad Thing
When you were younger, were you ever rebuked for being picky? Maybe you didn’t like to eat certain foods, perhaps you only wanted to wear certain clothes, or one of many other reasons.
Throughout our lives, we’re taught that being picky is a bad thing. We’re taught that being overly choosy is a bad trait to have and that a “mature” person knows when to graciously accept whatever is presented to them, even if they don’t necessarily like what is being offered.
As you may or may not already know, investing frequently goes against common ways of thinking. So, when it comes to investing, the conventional wisdom of “being picky is bad” is suddenly turned on its head.
An investor must be very careful with what sort of investment opportunities they wish to pursue, and which ones they choose to pass over. Hastily deciding without performing thorough scrutiny may prove to be costly, now and later down the road.
So, there’s nothing wrong with being a picky investor.
Picky Investors Aren’t Punished for Opportunities They Don’t Pursue
In organized basketball games, there exists a shot clock, which is usually 24 seconds long. The shot clock deters players from being overly picky with their shot selection, thus forcing them to eventually make a shot to keep the game going.
Teams that exceed the shot clock duration turn the ball over to their opponents, which in some cases could mean the difference between victory or defeat. Similar shot clock mechanisms exist for several other sports.
Fortunately, unlike organized sports, investors aren’t subject to such a strict time limit to make a choice. Investors can wait all they want for the right opportunity to present itself – there’s no need to pursue an undesirable opportunity because nobody will call them out for doing so.
Investors can browse through dozens of potential investments, reject all of them, and no punishment will come their way. As an investor, you’re allowed to be picky with what opportunities you want to pursue and what decisions you want to make.
One of the biggest psychological challenges investors constantly face is the fear of missing out. Most investors are always on the lookout for the next big thing – which prospective investment is “the next Apple” or “the next Amazon”?
If an investor is scared of missing out, then they’re more likely to forcefully pursue opportunities that come their way, even ones they don’t particularly feel comfortable with pursuing, simply because they’re scared they’ll let a once-in-a-lifetime opportunity slip from their fingers.
Some investors believe that the problem they face is that they don’t have enough opportunities to assess, hence the reason to pounce on everything that comes their way. However, that isn’t the case at all.
Looking just at stocks, the New York Stock Exchange has thousands to choose from. Given that investors now have the means to participate in international markets, and that new listings appear seemingly every day, investment opportunities abound. This isn’t to mention all the other investment instruments out there besides equities.
Despite the abundance of opportunities, what are in short supply, however, are excellent investment opportunities. This is where being a picky investor comes into play.
By being picky with the investments they pursue, investors minimize the likelihood of a subpar, or worse, poor investment ending up in their portfolios. With so many prospects to choose from, investors can be as picky as they want when it comes to establishing selection (or disqualification) criteria.
While no punishment will come an investor’s way for being picky with their choices, they bear full responsibility for the ones they decide to pursue, and whatever consequences that come with them.
Investors Bear Full Responsibility for the Opportunities They Pursue
While it’s true that investors can be as picky as they want without fear of punishment, this only applies when assessing their potential options before making a decision.
But once a decision has been made, then investors are fully responsible for how it will unfold, for better or for worse.
Back to our basketball analogy from earlier, investors may not be subject to a shot clock, but once they finally decide to get a shot off they are fully accountable for whether it was a good or bad shot attempt.
Investors can let hundreds of investment opportunities pass them by, but if they become impatient and forcefully pursue a bad investment, then the blame rests squarely on them. After all, they’re the ones who decided to pursue it, even though they knew it wasn’t the best choice to make.
Sometimes, all it takes to decimate your portfolio is one bad decision. Unless you’re under immense time pressure, there’s no need to rush when assessing the opportunities that come your way. Being a picky investor helps minimize the chances of that happening.
Nobody will call you out for being picky with your choices, but once you’ve made a decision, all eyes are now on you to see whether this decision will work out or not. If you willingly make a forced decision, don’t expect anyone to come and save you.
Being a Picky Investor vs. Being a Perfectionist
It’s easy to think that being a picky investor and being a perfectionist are synonymous, but this isn’t exactly true. On the surface, they may appear to be similar, but upon deeper inspection, there are key differences.
In investing, being a perfectionist means performing work with no error whatsoever and making decisions that always work out as expected. An investor who insists on perfectionism won’t pursue an opportunity unless it’s flawless, that is, there are no drawbacks whatsoever.
Going by that definition, perfectionism has no place in investing. Even the most thorough investment work will have some educated guesses, approximations, and very minor errors in them. Every decision that an investor makes will always have some sort of drawbacks to consider.
Investing, like any other endeavour, is fundamentally imperfect.
What distinguishes a picky investor from a perfectionist is that the picky investor is simply keeping an eye out for opportunities that best suit their criteria. The perfectionist insists that all their criteria be met, but the picky investor understands that there will never be something out there that checks all the boxes.
A picky investor has no problem letting countless opportunities pass them by, but deep down they understand that if they wait for a “perfect” opportunity, they’ll end up waiting their entire lives because such a thing doesn’t exist. The opportunities they pursue aren’t without fault, but compared to the countless others they rejected, the ones they choose to pursue are the ones they feel are best for them.
Perfectionists insist that everything they pursue must be blemish-free, whereas picky investors understand that even the best opportunities have some drawbacks, but those drawbacks pale in comparison to what they stand to gain.
Wrapping Up
Although we’re taught that being picky is a bad trait to have, this conventional wisdom is turned on its head in investing.
There is no shortage of investment opportunities for investors to choose from. Yet, not all of them are necessarily worth pursuing. Being a picky investor ensures that the opportunities they ultimately pursue best suit their criteria, minimizing the likelihood of a poor, costly decision being made.
Now, being a picky investor should not be confused as meaning the same as being a perfectionist. A perfectionist will only pursue an opportunity that has no flaws or drawbacks whatsoever. Being a picky investor means looking for opportunities that best match their criteria – even the best opportunities will have some sort of drawbacks, but that’s the reality investors face.
