A study examines the ideal timing to make investment decisions.
A study examines the ideal timing to make investment decisions.

According to a new study, if you are a night owl, making investment decisions first thing in the morning may be a terrible idea. The study was published in the ‘Journal of Business Venturing.’

The study found that time-based characteristics, such as the time of day and whether you prefer the morning or evening, can influence investment decisions and your ability to predict if a firm will succeed.

“Early-stage investments can be dangerous with high failure rates because not much is often known about a company and the time to make a decision is constrained,” said Jeff Gish, assistant professor of management at UCF and a co-author of the storey.

“Trying to identify a winner under those conditions is difficult enough, but we’ve also learnt that when you make those decisions has a major impact on whether they turn out to be successful,” he added.

Individuals have an internal clock known as the circadian rhythm, which regulates our alertness and sleep-wake cycles. Individuals often fall into three categories based on what time of day they are most awake and alert in a 24-hour cycle. Larks have a circadian mechanism that shifts earlier in the day, whereas owls are more alert later in the day. The third group of people is intermediate.

“What we discovered was that when people evaluated an investment opportunity at a time that conflicted with their body’s natural internal clock — for example, a morning person or lark making a decision late in the day or evening — they tended to make poor choices,” said Cristiano Guarana, assistant professor of management and entrepreneurship at the University of California, Berkeley.

“This conflict may go unnoticed by those making investment decisions, resulting in significant losses for people who, on average, have considerably less financial understanding than angel investors and venture capitalists,” Guarana warned.

Gish and Guarana have both investigated how a lack of sleep impairs cognitive skills required for successful concept evaluation and commercial decision making. Gish has started several firms and now invests in the ventures of others.

The three-part study looked at early-stage investment decisions made through equity crowdfunding, in which non-professional investors can spend a small amount for a stake in a firm. Participants in the study were recruited from the social media accounts of active followers of several leading equity crowdfunding platforms in the United States, including Wefunder, Fundable, and EquityNet, and surveyed about whether they were a morning or evening person, their investment experience, and time zone information.

Participants were then asked to complete a decision-making exercise at a predetermined time; for example, how much would they allocate to specific companies if they had $1,000 to invest? The organisations being reviewed were based on genuine investment opportunities, which included numerous desirable chances that succeeded well as well as several unwanted options that did poorly. Participants were also asked to reflect on the amount of sleep they got and their crowdfunding experience.

According to the study, owl investors invested more than lark investors in a failed enterprise in the morning, whereas lark investors invested more in a failed endeavour in the evening. With successful enterprises, the same types of faults occur in the reverse direction.

With platforms like StartEngine and MicroVentures making it easier than ever for inexperienced investors to leap into equity crowdfunding with the touch of a button, determining when you are most qualified to make those decisions could have an impact on your pocketbook.

“Prospective equity crowdfunding investors should be mindful of the time they choose to consider investment options, whether it is before or after their typical daily work routine. These investors would be wise to time their investing decisions according to their lark or owl proclivities “Gish stated.

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