The art of doing nothing

"All of humanity's problems stem from man's inability to sit quietly in a room alone."

Blaise Pascal

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“The big money is not in the buying and selling, but in the waiting.”

Charlie Munger

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“The stock market is a device for transferring money from the impatient to the patient.”

Warren Buffett

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"Lethargy bordering on sloth remains the cornerstone of our investment style."

Warren Buffett

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The secret of wealth is compounding, and the basis of compounding is time. This is what produces the magic. What you need to do is nothing, just wait and let time do its work. No extra effort is required from your part. This is where the trouble lies though. People cannot sit and wait because they think that more activity translates to better results.

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In most endeavours of human life, extra effort translates to better results and usually people become successful by putting in the extra effort. This principle then is applied mistakenly in the field of investing that requires the exact opposite. The personalities that are attracted to investing and the financial system make it hard to do nothing. How can you achieve something great by doing nothing? Here lies the paradox.

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The nature of the financial markets makes things even harder. Markets and most of its participants thrive on activity. Activity produces news, deals and commissions. Imagine getting financial advice that says do nothing for the next year. You probably would not want to pay someone for this kind of advice. What value did they add? People confuse activity with results. The aim is to get great results and not activity, therefore you should follow the strategy that delivers them.

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Investing is a long-term game. If you invest for 40 years, you will experience all sorts of market conditions. Sometimes the market will go up and other times down. A number of these moves will be big both in the positive and the negative direction. Doing nothing during these times is even harder. There is lots of advice from people to take profits when the market has gone up and cut your losses when it has gone down. People who give this advice do not tell you though what to do afterwards. What should you do now with the capital? Should you stay out of the market? How long? What makes you think that you can time the market? Doing nothing is very hard on these periods, but it is the right approach. Remember the journey of the S&P500 index over the last 70 years? Doing nothing was the correct choice.

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Of course, doing nothing does not mean doing nothing. It means that you should not tinker with your investment approach. Do not try to jump in and out of the market. Do not try to switch strategies because something has performed well recently. Just let it be and go fishing.