Don’t just stand there, do something!
Morgan Housel once wrote, “99% of long-term investing is doing nothing”.
Yet, “it’s the other 1% that will change your life”.
Still, ‘nothing’ won’t sell, will it?
Because no-one wants to click on a finance article titled, “The 5 rules for making, keeping and growing your money haven’t changed in 5,000 years. Click here anyway“.
Put simply, we don’t like to wait. We want decisive action.
Stupid, Raised to the Power of Decision Making
You. Me. Them. Him. Her.
We all make mistakes.
For example, this morning I tried to balance a cup of coffee between my forearm and hip, to press the pedestrian crossing blinker.
Guess how it ended.
I have done it 1,000 times before, but it was stupid.
Why not be little more patient, put the cup down on the footpath then press the button?
Every day we make thousands of small decisions like crossing the road.
But no matter how easy the decision might appear, we can get it wrong.
Take a look at professional fund managers.
They earn hundreds of thousands of dollars and probably have $200,000 in HECS debt from spending eight years at university studying finance.
But even they get it wrong 85% of the time, after fees, according to S&P research.
So is it any wonder why professional investors with fewer stocks tend to do better on average than those with more stocks?
When I worked for the best funds management research house in Australia I began to realise that the best-performing fund managers owned fewer stocks.
I believe it required them to make fewer decisions.
Warren Buffett, as usual, says it best:
“I call investing the greatest business in the world because you never have to swing…There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”
“Wait for a fat pitch and then swing for the fences.”
By “all day“, I think Buffett means ‘many years if need be’.
In his book, The Outsiders, which profiles eight of the best CEOs of recent times (including Buffett), William Thorndike concludes:
“Although the outsider CEOs were an extraordinarily talented group, their advantage relative to their peers was one of temperament, not intellect.”
For example, between 2006 and 2008 (the height of the Global Financial Crisis), Buffett made no major investments.
None. Zilch. Zero.
Depending on what you classify as a ‘major’ acquisition — it appears that Buffett spent at least two years doing nothing.
That’s right, despite having billions of dollars at his disposal to invest. The greatest investor in the world did nothing.
When every other ‘superstar’ was buying and selling property and shares, making millions of dollars on paper… he did nothing.
As Joe Hyams put it in his book Zen in The Martial Arts, “doing nothing can sometimes be more important than doing something“.
Legally, I cannot give financial advice in this newsletter.
But I can give you some factual information. True stories and the like.
So what I can say is this: Share markets, property markets, every market; will rise and fall over time. But you need not react. Buffett’s secret was and still is, his temperament.
His attitude. His control over emotion.
He puts the cup down and waits to cross the road when it is safe to do so.
It sounds weird, I know.
But try to think about that the next time you feel the urge to act with emotion — especially when it comes to those big financial decisions you make 1% of the time.
Here’s to your patient future,
P.s. This article first appeared in my weekly newsletter. It’s free and you can unsubscribe anytime. Just enter your name and email address below, that’s all there is to it.