The alarm clock startles me awake. I rise, wipe my eyes, put on my sweatshirt, and head downstairs to my office.
My computer screen illuminates the room. I can't resist that beautiful glow; it draws me like a moth to a flame.
There's news. There are stock charts. There are message boards to read. There are people who made tons of money last week, like shareholders of light-control technology company Research Frontiers (NASDAQ:REFR) and voice-technology firm Nuance Communications (NASDAQ:NUAN). That could have been me. That should have been me.
"I haven't made a purchase in more than a year," I think to myself. All those great returns have passed me by as I study business models and competitive advantage, calculate return on invested capital, and demand a good margin of safety.
Then I feel a weight on my shoulders.
"Too much work and not enough reward," it says. "You're missing out, buddy boy. How does it feel to be left out as the bull market and all those rising prices pass you by?"
I tell the voice it hurts. That it's no fun. I tell the voice to go away.
It chuckles and moves in for the kill. "Don't sit on the sidelines! Get in there and grab some of the action. Jim Cramer makes a trading decision like once a minute. You're averaging, like, one every two years. Get with the program. You're in the information age now, and you're missing out!"
The voice is right. I do feel like I'm constantly missing out. I watch stocks like Hansen Natural (NASDAQ:HANS) go way up, and I feel like I should have been there. But I think it's too expensive.
The devil hops to my other shoulder and says, "What is it with you and estimating value? The stock market does all of the valuation stuff for you. All you have to do is pick the ones that are going up. Why do you make it hard on yourself?"
I hate to admit it, but the devil on my shoulder has a point. I look back at the stocks that I thought were pretty cheap, but that I thought I should wait for a better price. Unfortunately, that list is long. I missed Lowe's (NYSE:LOW). I missed Getty Images (NYSE:GYI) and dELiA*s (NASDAQ:DLIA). I can give myself a break on Getty Images, since I was still learning about its business. But Lowe's and Delia's are in my circle of competence. How could I miss those?
Doubt starts to creep in. Maybe I am hurting myself. Maybe I should be making more purchases. That way I won't be on the outside looking in. That way I can be making money, too.
I look at my list of stocks in CAPS and think to myself, why didn't I put real money in these? I would be way ahead. What the heck am I afraid of? Clearly, I have what it takes to make purchases more frequently.
Full of bravado, my watch list beckons me. I'm ready to make a purchase. The question now: Which one do I buy?
The alarm clock startles me awake. I rise, wipe the sweat from my forehead, and realize it was all a bad dream. My heart races, and a cool drink of water calms me down.
Do you feel the pressure to buy, especially when the market is going up? Don't worry -- you're not alone. We all do.
The pressure to buy is immense. But you don't have to do so all the time. The stock market doesn't work that way. There are no penalties for passing. Sure, there are opportunity costs, but there are investment alternatives for money on the sidelines. As Seth Jayson and I were discussing at dinner the other night, if you think the market will only return 6%, and a savings account returns 5%, are you being compensated enough for the extra risk?
Don't wake up in a cold sweat. Here are some things to consider doing while waiting for the market to offer you a better price on prospective purchases you thoroughly understand.
Focus on what you already own
Revisit your investment theses for the companies in your portfolio. It never hurts to check your data and your assumptions. Seek out the bear cases of the companies currently in your portfolio. As I have said before, one way to become a better investor is to understand both sides of the argument, which helps you make sure you haven't missed something.
Learn something completely new
If you have the time, use it to gain knowledge. At the Santa Fe Institute, multidisciplinary research is the norm. Go explore new ideas, and learn how they relate to investing in the stock market. Knowledge increases as new connections are made. Go make some.
Just get away
Take a break from the market. If you feel like you have to make a purchase, get away from the stimuli. Turn off your monitors, put down the magazines, and get outside and do something -- anything but investments. That can help you clear your head and regain your composure.
Our business is built on talking about companies, sharing our thoughts, and giving our opinions about potential investment opportunities. But sometimes the pressure to make a decision becomes too great. And when it does, our decision-making abilities become impaired, and that little devil wields too much influence over us.
Nuance Communications is a Motley Fool Hidden Gems recommendation. To find out more about how small-cap stocks can have a big impact on your portfolio, click here for your free 30-day trial.
Retail editor and Inside Value team member David Meier does not own shares in any of the companies mentioned. He is currently ranked 300 out of 22,222 investors in Motley Fool CAPS. You can view his TMF profile here. The Fool takes its disclosure policy very seriously.
