What is ‘analysis paralysis’? Investment terms explained
Analysis paralysis is something that most people are affected by when they overdo their due diligence.
Essentially, extensive research into the property, location and strategy for your investment portfolio is important, but it can become a problem if you spend time constantly analysing without actually doing anything. This failure to buy, or to act, after substantial research is then called ‘analysis paralysis’.
How to tell if you’re stuck in analysis paralysis
Those who overthink regularly and like to consider every detail are more at risk of getting stuck in the rut of overanalysing. It’s very common for new investors, particularly as fear comes into play, and with so much data available it’s not surprising that conflicting details do come up and confuse the process.
Observer Cameron McEvoy calls it “an industry illness when it comes to property investment.” He notes that it’s hard enough due to property being a slow burn investment, and data often lagging.
“One of the best ways to combat a case of analysis paralysis is to invest in your own property sleuth skills. Become like a detective; don't be afraid to follow a hot lead based on instinct, and remember to use all of your instincts and logic to lead to you the answers you seek,” he explains.
He suggests using logic to question current data and numbers, compare it to historical data and listen to the opinions of many experts and agents.
“As for instinct – go with your gut feeling. Sometimes a great deal that just doesn't feel right, probably isn't right for you. This does not mean it isn't a great deal – it just isn't the deal that's the right solution for your brief.”
If you’re not sure whether you’re stuck in analysis paralysis, ask yourself these questions:
Am I financially prepared to purchase?
Am I confident that I know the area well?
Have I researched thoroughly?
If you have said yes to the above, then you may be delaying unnecessarily. You then may want to ask yourself: Do I have a reason to delay purchasing?
Rich Harvey notes that buyers who can categorise themselves as ‘reactive’ – that is, you buy when prompted and then perhaps it’s too late, are often those that are stuck in this paralysis. It’s all about having the right balance between research and action.
Sometimes, analysis paralysis is due to fear of purchasing the wrong thing. This may suggest that it’s time to get an expert on board for some guidance. It may also be because you’re not ready to take the risk. In some situations, listening to your internal paralysis and holding off out of the market can be a good thing.
It is worth noting that those considering the opportunity cost of their actions in particular also consider the opportunity cost of not acting at all.