From "Memorizing Phone Numbers" to "Managing Stocks": The Cognitive Laws Hidden in Quantities
Have you ever tried forcing yourself to remember the phone numbers of 100 strangers? Not saving them in your contacts, but being able to blurt out who each string of numbers corresponds to, what they do, and what their connection is with you. In psychology, this is called a "cognitive load test." The results show that the limit for an ordinary person is about 110. It's not that your memory is insufficient; it's that each string of numbers has to be associated with a "meaning." For example, your mother's phone number is "the emergency line to call at 3 a.m.," your colleague's phone number is "the key person for the project you're working on," and the delivery guy's phone number is "the guarantee of your dinner tonight." If you exceed this number, the numbers will turn into meaningless symbols. You'll either mix them up or simply forget them.
This follows exactly the same logic as managing stocks: each stock is a string of meaningful numbers — does its main business involve selling photovoltaic modules or conducting pharmaceutical R & D? Is its recent performance growth rate 10% or 50%? Does it usually rise by 3% or 5% when there is an industry tailwind? These meanings form your cognitive anchor points for it, and the number of anchor points your brain can hold has an invisible ceiling, just like the upper limit of phone numbers you can remember.
The essence of buying too many stocks: replacing "sensitivity" with "ambiguity"
Many people say, "Buying multiple stocks can diversify risks," but no one tells you that what gets diversified is not the risks, but your "intuitive sensitivity" to individual stocks.
What is "sensitivity"? For example, if you track a consumer stock for a month, you'll find it has a "little habit": it usually drops by 0.5% in the morning session and recovers in the afternoon following the rising popularity of the supermarket and retail sector. If the Shanghai Composite Index rises by 1% on a certain day, but the stock drops by 2% with heavy trading volume, you'll immediately realize - "Something's wrong. It must be that the gross profit margin in the financial report has declined" (because it never went against the sector's trend before). This kind of intuitive sense of "something being off" is the most valuable thing in investing - it can help you get out before a decline and seize an opportunity before an increase.
But what if you hold five stocks? Just as you finish looking at the intraday chart of Stock A, there's news about "rising raw material prices" for Stock B. By the time you switch to Stock C, it has already dropped by 3% – you don't even have time to check "why it's falling", let alone decide whether to average down or cut your losses. Your attention is fragmented, and your "intuition" turns into "random guessing": when a certain stock rises, you think it's because of good performance, but in fact, it's being hyped by hot money; when a certain stock falls, you think it's a pullback, but in fact, the major shareholder is reducing their holdings. In the end, you have no idea "what exactly the stocks you bought are", you only know that "I've bought a bunch of codes".
A common problem among beginners: Replace "thinking things through" with "fear of missing out"
90% of those who buy a large number of stocks are novices. It's not because they understand diversification, but because they're afraid of missing out.
Seeing the rise of the new energy sector, one fears "missing out on the track if not buying"; hearing friends say that a certain AI stock is going to double, one fears "missing the chance of doubling"; scrolling across the daily limit of a certain demon stock, one fears "being the last one who hasn't boarded the train". As a result, the number of stocks in the wallet increases from 3 to 5 and then to 8. It is euphemistically called "casting a wide net", but in fact, it is "rushing about blindly out of panic".
But the result is often that when making profits, each stock only rises a little, and when incurring losses, each stock only drops a little. The overall return is even worse than holding one high - quality stock. For example, if you buy 5 stocks, one of them rises by 10%, but the other 4 each drop by 3%. In total, you still lose 2%. Even worse, you have no idea why the rising one rises - is it because the performance exceeds expectations or the institutional investors adjust their portfolios? The next time you encounter a similar situation, you will still buy stocks randomly. Buying more essentially uses quantity to cover up the fact that you haven't thought it through clearly: you dare not place a large bet on a certain stock because you don't understand it at all; you can only comfort yourself with buying more that at least you won't lose all your money.
The most important question to ask oneself: How many stocks can my "cognitive limit" handle?
The core of investment is not "what to buy", but "what you can manage well".
You can do a simple calculation: How much time do you have to research stocks every day? If you can spare 1.5 hours each day and it takes 30 minutes to thoroughly understand the daily dynamics of each stock (reading news, checking the trend chart, and verifying the logic), then your limit is 3 stocks. For every additional stock beyond this number, your attention to the previous stocks will decrease by 1/3.
For example, I have a friend who initially bought 8 stocks. He had to spend 3 hours every day after the market closed to read the announcements, industry news, and minute-by-minute charts of each stock. As a result, he gave up out of exhaustion before even lasting two weeks. Later, he reduced the number of stocks to 3. He only needed 1 hour a day to keep track clearly: when the component price of a certain photovoltaic stock dropped, he knew it was time to reduce his position; when the clinical trial data of a certain pharmaceutical stock came out, he knew it was time to increase his position. Among these 3 stocks last year, two of them rose by 25%, and the overall return was 3 times higher than when he bought 8 stocks before.
The so - called "control limit" is actually the boundary of your "cognitive ability": How many stocks' logics can you understand in depth? How many stocks' abnormal signals can you quickly identify? How many stocks' dynamics can you continuously track? Figuring out this question is more important than "finding bull stocks" - after all, if you don't even know how many stocks you can manage, talking about "making money" is just empty talk.
In the end, you'll find that the essence of investment is to "make certain money with limited knowledge". Instead of buying 10 stocks that you "sort of understand", it's better to buy 3 stocks whose "temperaments you can fully understand" — less ambiguity and more certainty is the real way to "reduce risks".