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“This is a masterpiece.”
—Morgan Housel, Author, Psychology of Money
“Discover the extraordinary within.”
—Manish Chokhani, Director, Enam Holdings
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The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.
We make tens of thousands of decisions, from what to wear and what to eat to what stock to buy. Many are trivial, but each drains a small amount of mental energy.
Psychologists have a name for this: decision fatigue. It’s the tendency for our decision making to become impaired as a result of having recently taken multiple decisions.
Mark Zuckerberg once said he wears the same grey T-shirt every day because deciding what to wear feels “frivolous.” Steve Jobs famously did the same with his black turtleneck. Barack Obama wore only grey or blue suits, explaining, “I’m trying to pare down decisions. I don’t want to waste time deciding what I’m eating or wearing because I have too many other decisions to make.” Learning from these gentlemen, most of the t-shirts I have in my wardrobe are of three colours—black, light black, and dark black.
While your spouse may smirk if you wear almost the same “uniform” daily, behind this “lazy” habit lies an important truth: every decision you make chips away at your limited cognitive battery. And once depleted, that battery doesn’t just make you tired, but also sometimes reckless.
Social psychologist Roy Baumeister, who pioneered research on willpower, put it bluntly:
Good decision making is not a trait of the person; it’s a state that fluctuates.
He found that the more decisions we make, the less disciplined we become. Dieters eat more junk late in the day. Judges are far more likely to grant parole in the morning than in the afternoon. Doctors prescribe unnecessary antibiotics as their day wears on. The pattern is consistent: mental exhaustion leads to poor judgment.
The Paradox of Modern Choice
In his book The Paradox of Choice, Barry Schwartz explains how more options can paralyse us. The modern investor lives this paradox daily, with thousands of mutual funds, IPOs, YouTube “stock tips,” and notifications begging for attention. Each piece of information demands a micro-decision: Should I buy this? Should I read that? Should I act now or wait?
The human mind isn’t designed for this level of choice. Every act of consideration burns glucose and willpower. Eventually, even the most rational investor becomes an impulsive one.
You’ve probably noticed that at the start of the day, you can calmly evaluate a company’s intrinsic value. By evening, you’re tempted by the latest “momentum stock” someone mentioned on Twitter. It’s not a lack of intelligence but simply decision fatigue in disguise.
If you study the best investors in history, you’ll find that most of them have recognised the danger of mental clutter. Warren Buffett once said he’d give students a 20-slot punch card for their lifetime investments, and once the slots were used, no more investments were allowed:
I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.
He wrote this in his 1993 letter to shareholders:
Charlie and I decided long ago that in an investment lifetime it’s just too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire’s capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart – and not too smart at that – only a very few times. Indeed, we’ll now settle for one good idea a year. (Charlie says it’s my turn.)
Munger added:
To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.
These are not just statements about focus but more importantly about conserving cognitive energy. Munger and Buffett knew that the more often you’re forced to decide, the lower the quality of those decisions. So they removed unnecessary noise and waited patiently for the rare, obvious pitch.
Baumeister, whom I quoted above, did research that revealed how willpower works like a prepaid card which has a limited validity and limited usage. The more you resist temptations or make tough calls, the less power you have left for the next decision.
That’s why investors who spend hours scanning the market often end up making their worst calls late in the day, which may involve selling too soon, chasing a stock that “everyone” seems to be buying, or overreacting to minor news.
Decision fatigue also explains the illusion of productivity many investors fall into when they mistake activity for insight. The more tired you are, the more you confuse motion with progress. That’s when “just one more trade” feels logical.
How to Protect Your Decision Energy
Now, you can’t avoid making decisions, but you can protect your willpower from being squandered on the wrong ones. The solution is not to think harder but to think less, better.
Here are a few practical ways that have helped me over the years in conserving my decision energy and making better decisions:
- Automate the trivial: Eat roughly the same breakfast, wear simple clothes, and schedule workouts. Just free your mind from low-stakes choices. Mental energy saved here compounds elsewhere.
- Batch your investment decisions: Don’t check your portfolio every day. Review it maybe monthly or quarterly in a single sitting. Frequent checking creates micro-decisions that wear you down and bias you toward short-term noise.
- Front-load the important: Do your deep analysis and major portfolio reviews in the morning when your mental reserves are full. Avoid evaluating new investments late at night. Applies to writing too. Write your most important ideas in the morning.
- Use pre-decided rules: Set written principles about when to buy, when to sell, position sizes, and margin of safety thresholds. You can always have situation-dependent exceptions, but such written principles help convert emotional judgment calls into automatic triggers, that helps in conserving decision energy.
- Limit your “menu”: Just because there are thousands of listed companies doesn’t mean you need to study all of them. Define your circle of competence, which helps keep fatigue (and foolishness) at bay.
- Rest and refuel: Sleep well (good investing also helps there). It’s a reset button for your willpower. No amount of caffeine or investment gains can substitute for it.
Guy Spier once wrote that his returns might not be worse, and might even be better, if he could only trade once a year:
I actually think it’s quite possible that my returns would not be much worse and might even be better if I was only allowed to trade on one day a year, so every January 1st or the first week in January, make all my trades and then not do anything for another year and just let those decisions build up.
Think about fund managers who sit in front of 10 screens all day. Their job demands hundreds of micro-decisions. And by market close, they’re drained. That’s when impulsive end-of-day trades happen.
We as investors aren’t immune either. Checking your portfolio five times a day creates five unnecessary decisions—Should I do something? Should I sell now? Should I buy more? Eventually, fatigue disguises itself as intuition.
The Wisdom of Doing Less
Bruce Lee once said:
It is not daily increase but daily decrease, hack away the unessential.
That single line could serve as a philosophy for both living and investing. Investing, after all, is not an IQ contest. It’s an endurance test of judgment and restraint. The longer you stay in the game, the more you realise that your greatest edge is not superior intelligence but sustained clarity, which decays the fastest when overused.
Sometimes, that also means not deciding alone. When fatigue clouds your thinking, it helps to have a trusted friend, mentor, or financial advisor to challenge your impulses and hold up a mirror. Good counsel may not make the decision for you, but it may prevent you from making one you’ll regret.
So, before you click that next “Buy” button, pause for a moment. Ask yourself: Am I acting because it’s right, or because I’m tired of deciding?
You may find some insightful answers there, and they might just save you from a costly mistake.
Disclaimer: This article is published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund. All Mutual fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/ redress any complaints, visit dspim.com/IEID. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Two Books. One Purpose. A Better Life.
“This is a masterpiece.”
—Morgan Housel, Author, Psychology of Money
“Discover the extraordinary within.”
—Manish Chokhani, Director, Enam Holdings
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