Investing Lesson: Over Trading

Could be labelled over transacting as well

This one is pretty simple and honestly one that that is still hard for me. I have to put some controls in place to prevent/limit damage. As per the usual, this is my lesson. You may not have this issue.

Some Background

When I was getting my feet wet with the stock market I would frequently watch BNN (or Business News Network). Even before I decided to sell all my mutual funds and pick stocks myself I was watching and trying to learn. This was a time when commodities were doing well and the more eclectic the guest (and negative was on the USD) the better the ratings. As such my exposure was filled with oil, gold, copper, potash and similar minded investors. Looking back, it was horrible and full of noise. One of the challenges of starting alone was not having anyone smack me across the face and tell me to turn off the TV.

Fast forward a few years and we have Twitter (now X). The goal isn’t really education. It’s to get you to stay on the app for as long as possible and maybe pick a topical fight with a stranger (aka “engagement”). The best engagement comes in the form of arguing with strangers about something neither of you knows much about, predicting the future/end of the world, dunking on celebrities, and posting the odd highlight. Lowering your IQ one brain cell seems to be the eventual outcome for most (me included). Don’t get me wrong, X is very valuable if used properly. I think it is part of a tool in your toolbox as an investor. I use it for the DMs mainly and to check sentiment. My enemies use it to tell me how squats are bad for your knees.

Now we have Substack which is full of very insightful and interesting newsletters. Whatever your interest is, there’s a Substack for that. The further shift into the creator economy has more newsletters than I can keep up with. Even though so many are very high quality and worth supporting, one can only read so much each day.

So what’s my point?

Without trying hard there is more information coming at you that you can realistically absorb. You want to be informed in a timely manner on relevant topics, but you have to sift through a ton of noise. No matter how hard you try there is still the push to get you to “do something” each and every trading day. Every employment data point, new stock idea, 13F, Buffett data, rig count update, immigration data, new book or podcast, interesting articles that confirm your previous biases, etc. All need to be read, synthesized, reacted to and discussed on social media (because if you don’t let others know you learned something, did you even learn anything?) The constant newsflow and data points are going to have anyone exhibiting ADHD symptoms.

This looks something like this for me: weekly oil inventory data released -> bigger inventory build than expected -> US and/or China in or heading into recession -> confirm that at least one other investor worth billions agrees with me -> sell all cyclicals and OFS cos -> tell everyone about this and how smart I am.

EVERYTHING NEEDS TO BE REACTED TO! Or does it? Like everyone else, I am horrible at predicting the future. And that’s where we make our money in the stock market. Not what happens, but what’s going to happen. It goes without saying that over-trading or over-transacting can take away from long term results. There have been many studies confirming this.

If you are this far you are likely thinking “yeah no duh, don’t trade to much”. Hey give me a break. This is my lesson to bemoan. Maybe this isn’t (or ever was) a thing for you. That’s good. You are smarter than me.

What to do about it

For me, I put in some friction to get my brain to slow down.

When I went full time, I went from time constrained to time glutton. I know have pretty much complete autonomy for my day. The friction today is having productive and non-productive things to do with my time that are away from the computer screen. This can be working out, woodworking, visiting a friend, volunteering at my kids’ school, napping, reading, spending time with my parents, playing Lego, writing, etc. I have to intentionally schedule things into my day that aren’t investing so I don’t have time to over-trade. I have also (very slowly) gotten better at controlling the quality and amount of data points coming at me. For example, when I click on the bookmark in my browser for X, it goes to my direct messages not my feed. Regardless of how much time I spend on maintaining the integrity of my feed by muting words and people, it still has a ton of noise.

I also have notifications muted on my phone and computer for most of the day. When I am doing my daily Deep Work, there is nothing to disrupt me. Having things muted also allows you to control when you are ready to receive data/news. I have been guilty of checking X before I get my kids’ to school and read something that requires my attention. I am not distracted for the rest of the morning routine and I am not a present parent.

Before I went full time as a private investor, I had some natural friction to over-trading, aka my day job. Though I was considered white collar, I was very busy on the shop floor managing, babysitting, and being a therapist to more grown men than I care to count. I literally couldn’t “do something” with the news because I was likely in a (pointless) meeting. I would try to catch up at lunchtime or at the end of the day. More often than not, I would catch up after everyone in the house went to sleep.

Another thing that I didn’t mention was that once you have enough capital the illiquidity of microcaps will slow you down. You literally can’t move large sums of money in a short time on a regular basis in microcaps. This is one of the many reasons I stick to these little companies.

It’s interesting that over-trading and over-reacting to our emotions are often one and the same. I don’t know about your childhood, but mine was not full of male influences in my life sharing their emotions. Even during hard times, emotions were buried. No wonder than many adults have such a hard time understanding and managing their emotions. Some of the strategies to slow yourself down and not overreact are quite similar. For example: when I received an email that triggered me, I would draft a response that was passive aggressive (though likely warranted). I would wait until the next morning before sending it. 99% of the time, I would have cooled down and wouldn’t sent he email.

I hope you either learned something or were entertained. If you have a strategy to combat the desire to over-trade feel free to comment below.

Thanks for reading.

Dean