A time for (in)action

The equity markets are at an all time high and investors are feeling a deep urge to do something about it. Certainly, all the inputs from the social media and the legacy media are getting a bit breathless about the highs. Everything is going to go up, and you'd better buy while stocks last. The train will leave the platform any time now.

Which basically means that for sensible investors, this is the time to do nothing, more or less. All things considered, investors who will ignore it all will do better. Of course, doing nothing is an (in)activity which is not normally associated with success in anything. It's actually associated with laziness and failure. That's probably true for most things in life, except not in investing.

The general feeling is that things are happening, so we must do something. Think about what activities would normally be associated with investing. 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. When the markets are touching new highs every day, then surely you need to be looking at more and more investments? But that's not true at all.

This concept 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, regardless of the market conditions. The bulk of the activity of investing is waiting. Waiting for months and years while your investment grows, powered by the monthly drip-irrigation of your SIP instalments.

Which is something that most investors sort of know but 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 focussed 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 true, act when they shouldn't and do worse than others. When stock prices are zooming up, or in fact any kind of event is going on, this is even easier to do.

Over the last three years, we are living through an overdose of events. From the rise of the Chinese virus to all kinds of economic crisis and now this war, more seems to have happened in the last 30 months than has happened in the previous decade. This is sort of true, but it does not actually matter. In fact, investors who acted to take quick and decisive actions ended up doing badly. Unless there was some huge and glaring anomaly in your investment portfolio, very little is needed to be done. In fact, if you had some bad investments that can now be gotten rid of through high prices, you should do so quickly. That's about the only kind of action that is needed at a time like this.

In fact, when COVID hit, the great Charlie Munger put it best. He said it about the COVID situation but it's actually true most of the time. At that time, despite $125 billion in cash and assets at rock bottom pricing, Buffett and Munger were, as Munger put it, sitting on their hands. Nothing tempted them. As Munger said, "This thing is different. Everybody talks as if they know what's going to happen, and nobody knows what's going to happen." For ordinary mortals like you and me, that's true for most events.

The bottomline is that you should take the opportunity to fix obvious problems but on the whole, this is not a time to act just because the numbers are ticking up.

Suggested read: How to be a boring investor