Last week I did a webcast called “Better Routines Make Better Decisions“ about investor routines and how you approach the trading day. Most of us begin each day by grabbing a cup-of-Joe and sit down to begin our daily investment routines. In this webcast, I detail my morning ‘coffee routine’ and break down my exact process, which you can find here.
One of the key takeaways from the Q&A session during the webcast is the importance of the order in which you look at things. For example, a long-term investor should first be looking at long-term trends, data, and markets. One of the questions asked was where your portfolio should be in the routine order. It is normal for you to want to sit down and fire up your computer and begin by looking at your own portfolio (or your clients' portfolio).
Instead, I would actually recommend putting this at the end of your daily process, not the beginning.
My reason is due to confirmation bias. By forming this bullish or bearish opinion early on, you assign greater weight to data that supports your preconceived conclusion and mentally push away information that disagrees with or fails to validate your conclusion. As a result, you look at your portfolio with this particular point of view and gather data that supports what you have already decided to do.
What I would recommend instead is to first gather your information and data (for myself this means looking at a weekly chart of the S&P, then moving on to a daily chart of the S&P, and so on). Gather your data from other markets, global exchanges, asset classes, various sectors/ industries/ stocks, and finally at the very end you can look at your portfolio.
The logic behind this is because you should first ask yourself, ‘what does the market look like?’ to determine your market perspective and outlook.
The second question should be ‘how am I positioned relative to that outlook?’
Let’s say (hypothetically of course) that you have determined that the market is overextended and has limited upside. You can then look at your portfolio and determine if you are positioned for that outcome based on the information and data. If so, great! If not, where can you make changes to better position your portfolio to better align with the market’s current direction?
By working in this order you are gathering information in an unbiased format and then comparing it to your own portfolio and positioning.
My challenge to you is to review your routine and strategically move the viewing of your own portfolio to the end of your process and see how it changes the results. More than likely you will learn to view the information with much more limited bias.
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.
