5 Reasons Why Do Your Own Research (DYOR) Can Be Bad
What, doing your own research can be bad? Yes.
Dear retail investor,
you know that when watching content related to investment, content creators usually disclaim their statement by saying “Do Your Own Research” (DYOR) in short. This is a completely reasonable statement to make because before making an investment, we definitely need to have a proper standard of due diligence.
In this editorial, though, we are going to uncover 5 reasons why doing our own research for our investments can be bad. So make sure when you are doing your own research, you consider these DYOR pitfalls below.
1. Too much noisy information
Part of why we fail to make an optimal investment decision is because there is plenty of noise and very little signal in our investment research. For example, we may hear the news that a company is performing well and hence suitable for investment. However, when we ask around, our peers might give a different answer. Finally when we consult other materials online, we might also get a different assessment.
We are no longer living in an era of limited information. Too much information is often a hindrance for us to be more informed about our investments.
2. Lack or absence of research methodology
We often do not have a standard research methodology or if we do, we don’t stick to it. From interviews that we have conducted, most users report that the way they do research is simply just by asking “experts” with little credentials or by consuming content online.
Consequently, this approach will prevent them in building conviction on their investment thesis. For example, a simple statement such as fear of recession or inflation would make them question all of their investment decisions.
3. Not enough time
We often have our main responsibilities such as having a professional job, running our own businesses, taking care of our family and many more. These responsibilities naturally take away time for us to do meaningful research to make an investment decision.
So the question is, how much time do you need to spend on your research? The answer to that is it depends. A general guideline is to spend enough time such that you can gather solid information that comprise risks, prospects, product and management team for the investment horizon that you are having. Some people can research this information in no time. Others are completely different, requiring plenty of time to gather and digest the information.
Which one are you? If you are the latter and you have main responsibilities outside investing, chances are you do not have enough time in doing your own research.
4. Not enough investment knowledge
Investment knowledge refers to the knowledge that you use as a basis of your investment decision. If you are investing in a company, you should know about how the company is making money, how the company is planning to expand its operations in time to come, how the product is received by the market and many more.
If you are investing in cryptocurrency, you should know about what is the value proposition of the project. What new technology does it bring to the table and what are the use cases.
The point is, for different investment instruments, you should know why those investment instruments exist in the first place. After which, you should find out what information is important for you to determine whether this will be a good investment or not. If you do not know this crucial information, chances are, doing your own research might lead you to researching something else that might mislead your investment decision.
5. Not enough honest or credible source
Plenty of sources that contain information for your investment research purposes is not credible. Problem is that they can be treated as a credible source even when they are not. This becomes especially problematic if we cannot distinguish between credible and non-credible sources. Our investment research, in the end, becomes polluted by false information which might hurt our ability to make an optimal decision.
To conclude,
Yes doing an investment research is absolutely critical before we make an investment. What is even more critical is to do this right. We do not want to make bad research and straight up FOMO into an investment do we?