In Pooh’s Little Instruction Book Piglet comments, “Don’t underestimate the value of Doing Nothing.” There are many investors who should heed his advice.
Of the many temptations in investing, the temptation to act too soon is among the worst. If something unexpected happens, people want to know what what you are doing about it–as if your doing something will change the underlying problem. By contrast, if something expected happens, it is inviting to execute your plan right away, even though it is likely that the best values will be had down the road a ways.
In this way, investing is a lot like baseball. Ted Williams used to comment that he would divide the strike zone into 77 different cells, each the size of a ball. He would then only swing at the pitches that were in his favorite cells–the ones he knew he could hit. If a ball didn’t enter his sweet spot he would simply wait for the next one. His patience helped him build a career .344 batting average over 20-years.
Consider the recent financial crisis: many investors thought that the crisis was overblown, and that the Fed’s decision to supply the necessary liquidity would keep the economy out of a full-fledged panic. Nevertheless, the best time to buy wasn’t right after the Lehman bankruptcy or the AIG meltdown or even the WaMu debacle. It was months later.
Piglet was right: it’s easy to underestimate the value of doing nothing. Waiting can be uncomfortable–but it’s not as uncomfortable as doing something dumb.
Douglas R. Tengdin, CFA
Chief Investment Officer
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