I was slightly amused last night as I watched The Apprentice – You’re Fired (guilty pleasure admitted) when one of the panel mentioned that the boys team (who made a loss on the task) would have “made more money if they had done nothing”.
Now in this case it would have been true – when you make a loss in business, you may well have been better off doing nothing at all. As we all know, some businesses recover from these losses and go on to be very successful, others suffer a more unfortunate fate.
This got me thinking … the same is often true with investing.
In our ‘always connected’ society there is no shortage of new articles, information, recommendations, analysis and so on, all promising to have the latest investment tip – the latest thing to be in or out of. All of these things are encouraging us to do ‘something’, however with investing it can often be better to do nothing at all.
We all know that investing is a long term game, however, in reality, many of us are tempted to trade and tinker with our portfolios far more than is healthy. Not only does this add additional costs in the form of dealing charges and the like, it can also be damaging to portfolio performance. Losing holdings don’t have time to recover after what are often temporary falls and winning holdings can be sold too soon in pursuit of the ‘next big thing’.
Although it can seem a little, dare I say, boring, when investing, it is often better to sit on your hands and do nothing at all, letting the passage of time take care of the rest.
Now of, course this can be taken too far as well – it is important that a portfolio is regularly reviewed and analysed and changes made where appropriate, but in many cases, the best thing to do will be nothing at all.
We review our portfolios on a quarterly basis, but history has shown that on at least half of those review dates, we have chosen to do nothing at all. Some might call it boring, but the evidence shows us that this is often the method that delivers the best outcomes.