Photo: Victor Hancek. Source: Pixabay.
Every few years, someone compiles some of Winnie-the-Pooh’s life lessons into a small book. In one of these, Pooh’s Little Instruction Book, Piglet remarks, “Don’t underestimate the value of Doing Nothing.” Investors should heed this 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 you are doing about it – as if 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.
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. He called it, “waiting for a fat pitch.” His patience helped him build a career .344 batting average over 20-years.
Consider last year’s Brexit vote: many investors thought that the vote would lead to an immediate crisis of confidence in the UK. Initially, their markets fell. But the crisis never came, and the UK stock market is up significantly since, in both Pound and Dollar terms. Folks who sold during the panic are coming up short.
FTSE 100 after Brexit. Source: Bloomberg
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