Mindless vs. Mindful Investing

"Be happy in the moment, that's enough.  Each moment is all we need, not more."  -Mother Theresa

I'm on my way back to Cleveland after speaking at the Bloomberg Buy-side Forum in New York.  Yesterday I sat in on a fantastic panel on the active vs. passive debate, featuring Jonathan Golub (RBC Capital Markets), Jim Rowley (Vanguard) and Krishna Memani (Oppenheimer) and moderated by Eric Balchunas (Bloomberg).

Lots of interesting themes were discussed- one that jumped out at me was when Eric spoke of the "mindlessness" of customers that tend to chase performance.  I'm passionate about mindful living (especially mindful communication) and have found that a regular habit of meditation makes a huge difference in my ability to handle stress and be the kind of person I'd like to live with.

What is mindfulness?

I've seen the term "mindfulness" defined in many different ways.  What it means to me is being present in the moment- being aware of your surroundings- noticing the little things.  Meditation is one way to improve your ability to focus on the now, but mindfulness can happen any time during the day.  Really watching a toddler explore his surroundings instead of using that time to think about the grocery list.  Actively listening to what someone is saying instead of thinking about what you're going to say next.  Literally stopping to smell the roses.  All good examples of mindfulness.

I started to think about the characteristics of a mindful investor.  How can one invest more mindfully?  And equally as important, what are the pitfalls of mindless investing?

The mindless investor vs. the mindful investor

A mindless investor...

  • chases performance, investing in whatever is hot right now.
  • checks her portfolio often, reacting to short-term price fluctuations.
  • reacts to news swiftly and suddenly, often changing positions as a result.
  • suffers from myopic loss aversion, focusing on short-term price movements.
  • has her cellphone lighting up with e-mail alerts, which she always checks immediately.
  • uses price alerts as an opportunity to freak out about every little price movement.

A mindful investor...

  • stays true to her process, investing in what provides the best opportunity for long-term success.
  • checks her portfolio occasionally, focusing on long-term price appreciation.
  • takes the time to consider long-term implications of news events.
  • avoids myopic loss aversion by sticking with long-term trends.
  • turns off e-mail alerts and has a couple set times each day for e-mail.
  • uses price alerts as a way to eliminate the need to check the portfolio too often.

More to come on this theme- but I hope that this list helps you consider which of your own habits may be worth reevaluating!

RR#6, 
Dave

Disclaimer: This blog is for educational purposes only, and should not be construed as financial advice.  Please see the Disclaimer page for full details.