Everyone is busy today. Ask anyone, “How are things?” and the answer is inevitably, “so busy!”. As investors, unless we’ve completely outsourced the management of our wealth to others, it’s important that we keep tabs and follow the news. Today this is a 24-hour job. And, it’s also impossible to do.
The danger with trying to stay on top of everything is not only mental fatigue and all-around crankiness, but poor decision-making which often leads to bad investments and a loss of wealth. FOMO, fear of missing out, will drain our brains faster than an episode of Three And a Half Men.
Self-imposed busyness temporarily quells our anxiety but, when it comes to investing, it’s the pits. No wonder Warren Buffett, says, “Lethargy bordering on sloth remains the cornerstone of our investment style.”
The four horsemen of portfolio returns are: high fees, high turnover, taxes, and market timing. Being a busy-bee in Busy Town contributes to all of them.
Most of us are not stupid and yet our addiction to busyness makes us do stupid things, at least from an investment point-of-view. There’s a famous quote: “An investment portfolio is like a bar of soap, the more you touch it, the smaller it gets.” The good news is, Busy Town is not Hotel California. We can check-in and we can check-out. Here’s how:
Once you’ve established your investment goals and made a suitable asset allocation, you should be able to let things coast for a long time. How long? Five to ten years, for starters. Although that depends on your personal goals and circumstances and on material changes affecting your holdings. Buffett’s favorite holding period is “forever”. Between 10 years and forever is about right for most value investors.
Very active trading, often related to chasing returns, increases your transaction costs. If the transaction triggers capital gains, you’ve now got tax to pay. Investors tend to buy on exuberance and sell on fear. That leads to buying high and selling low. No one can time the market, so when buying high you’ve immediately lost your margin of safety.
Put yourself on an information diet:
The 24-hour news cycle entraps the mind. Reporters, commentators, opinionators, and pundits all have a job to do. Your job is to periodically take a break from the ‘noise’. Feeling overwhelmed by information is not a recipe for good decision-making.
Trust your plan:
Unless your investment goals or time horizon have changed substantially, trust your investment plan. Tweaking, fiddling, re-allocating, are make-work projects at best and portfolio hazards.
Sometimes doing nothing is the best course of action. My portfolio has lived through several market meltdowns. Had I panicked and traded, I would have lost out on a robust recovery. Not to mention that once you’re out of the market, it’s emotionally difficult to get back in.
Though it seems counter-intuitive, one of the keys to successful investing is to do nothing, or at least as little as possible.