I don’t generally make New Year’s resolutions, but if I did, one for this year would be “do nothing.” Sounds lazy, doesn’t it? Let me add some context so that you aren’t just imagining me sitting on my couch for the entire year. It’s my new year’s resolution for my investments.
The fact is that doing nothing, or better put, sticking with a long-term strategy, is often (if not always) the best thing to do. It’s also one of the hardest things to do – especially when markets have fallen significantly, and the reasons for that fall appear to be hanging around.
My mother would phrase the needed advice here using the words, “this too shall pass.” That’s too simple and naïve for most people. We search for understanding by examining market messes in the past, only to find that indeed this time is different (they all are different to some degree) suggesting that perhaps this is the first time that some action is warranted. Or we listen to the voices of those who shape some reasonable sounding prediction of the near-term future, many of them with very convincing arguments. In short, we search for facts where sadly, none exist.
More importantly, we have an innate bias for action.
A bias for action actually sounds good. It implies that we get things done. We aren’t sitting idly waiting for our ship to come in. Tom Peters and Robert Waterman solidified a bias for action as a key success strategy in their 1982 best seller “In Search of Excellence.” Wayne Gretzky famously said, “You miss 100% of the shots you don’t take.”
A good example of this bias for action is found in soccer. I have always been intrigued by the fact that soccer games produce such low scores. The net is the size of the side of a barn, making the goalie appear hopelessly small. This becomes even more evident in penalty kicks where the shooter scores about 85% of the time. (In hockey, the scoring percentage rate is more like 35%). The hopelessness of the situation is highlighted further by the fact that the goalie almost always chooses to randomly jump left or right attempting to match the direction of the kick. Of course, he/she looks ridiculous when jumping in the wrong direction. But that embarrassment is preferred to the shame of making no decision at all. And yet, the statistics suggest that the best strategy for soccer goalies is in fact to just stand still. For soccer goalies in penalty kicks, doing nothing is the best, but hardest, thing to do.
Staying pat with investments isn’t avoiding a decision. It’s making the decision to stick with a long-term strategy. It’s making the decision to pursue the strategy with the best odds of success.
Oscar Wilde said, “To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual.” I’m not sure that he was talking about his investments, but he could have been. And you may find it reassuring if you think to yourself, “I’m not doing nothing, I’m doing the hardest thing.” And in this instance, the hardest thing is the right thing.