While many people will try to persuade you otherwise, the bulk of 'activity' in investing is actually doing nothing
10-Aug-2021 •Dhirendra Kumar
The other day, I saw this tweet from Nassim Nicholas Taleb where he was talking about vacations: Don't go to resorts where you meet "achievers" on commoditized vacation actively trying to relax. Go to villages (preferably your village of origin) & interact with locals who can teach you how to do nothing when there is nothing to do.
While this is no doubt true about the vacations some people take, the most interesting part is actually even more relevant for investors and that's the phrase 'how to do nothing when there is nothing to do.'
Doing nothing is an activity that is not normally associated with success in anything. In fact, it is associated with laziness and failure. That's probably true for most things in life, except not in investing. It is true for employees, for students, for sportspersons, for politicians and certainly while driving on Indian roads. Therefore, we sort of assume that it must be true in savings and investments.
Think about what activities would normally be associated with investing? I guess most people would think that investing consists of activities like studying investments, choosing them, monitoring them, looking for new ones, weeding out old ones and so on and so forth. That's a lot of things to do. If you have 10 or 20 investments (and many people have more), it could almost be a full-time activity.
This whole idea of continuous action is actually quite misguided. When I think of the actual activity that should take up most of the time of investors, then it should be nothing. For most - almost all - of the lifetime of an investment, you should be doing nothing about it. The bulk of the activity (although that's not the right word) of investing is waiting. Waiting for months and years while your investment grows, powered by the monthly drip-irrigation of your SIP instalments.
The problem is that there are far too many people who are actively trying to persuade you otherwise. Indeed, their livelihood depends on it. Much of the investment advice industry is focused on giving you the impression that investing consists of doing things and investors who do more things will earn more. Somewhat counter-intuitively, this is not true for investing. Investors who think that this is a true act when they shouldn't and do worse than others. As someone said, a bored investor is a dangerous thing.
One driving factor behind this action is also the investment entertainment industry, which claims to be the investment news media. The impression they try to create is that short-term events matter to investors. This is simply wrong. They do not. I get a lot of mails from people asking me for investment advice and for ways out of their investment problems. The problems always arise out of things that the investor did or didn't do over many years and sometimes decades. Not just that, solving those issues always involves taking actions that need to be sustained over the years. I never come across someone who has problems with an investment portfolio because he or she didn't stay glued to the breaking news and react to events rapidly. Rather, the very opposite is true. Many investors do badly because they pay too much attention to the news and react too much to events, well in advance of the real purport of those events becomes clear.
We're currently living through the biggest proof of this phenomenon that we have seen in our lifetime. Since February 2020, the apparent impact of COVID on your investments has changed course rapidly. Investors who acted precipitately ended up doing badly through their actions. Unless there was some huge and glaring anomaly in your investment portfolio, very little needed to be done.
The great Charlie Munger put it best last year. Despite $125 billion in cash and assets at rock bottom pricing, Buffett and Munger were sitting on their hands. Nothing tempted them. As Munger said about COVID, "This thing is different. Everybody talks as if they know what's going to happen and nobody knows what's going to happen."
That's actually true of most events.