Investment – the psychology of doing NOTHING

by ChingFoo Lieu on 20/01/2014

How hard it is to be sitting duck doing nothing with our investment when we are bombarded by a myriad of noises everyday which we cannot seem to ignore? Hard. A alien concept, totally. Although I am not a soccer fan, imagine during a penalty kick the goalkeeper just stay in the middle instead of jumping to the right or left. Now imagine how stupid you would look as the goalie if the ball just rolls past you in the middle of the net? But to the spectators, at least you tried. That is 100 times better than being static in the middle of the net while the ball shoots past you on your left or right.

Similarly, a fund manager sometimes finds it hard to tell investors that at certain trying times, the best strategy is to do nothing. That keeps investors asking – “why the hell are you keeping large portion of my money parked in money market funds instead of investing it?” Let’s put our shoes in the fund manager’s. It’s hard to justify it especially to non-savvy investors. Which is why you see many unit trust consultants do frequent fund switching for their clients when the market is erratic; NEVER mind it it loses money, at least we “took action!” That’s like doing something for the sake of doing, chasing the chickens running around in circles. You may not catch the chicken but hey, it’s a good workout aye?

Wrong. Action doesn’t equal progress – action is only good if it adds value and doesn’t make things worse.

Funnily enough, that’s the same way most people feel about their investments. Especially the stocks type. Any economic wind that blows into our way, we always felt the urge to do something. Buy more or sell now. My hands felt itchy in a flurry of market news. Suppressing that urge to act at the slightest “provocation” is not easy – so sometimes I got to occupy myself with other non-related stuff.  Else everyone would feel the below:

  1. When market is down, you feel that you must sell to avoid looking like a fool. 
  2. When market is up, you feel that you must buy more instead of being a loser.

Most people, sadly, end up buying high and selling low.

But as hard as it is to accept, INACTION is sometimes a legitimate strategy. Why? Because our decisions are clouded by our emotions. And our emotions change way too often for us to act decisively and prudently on them. Who says men are not as emotional as women?

Bonus – Review of PCM Recommended Stocks in 2013 and going forward in 2014 (Password protected)

quote-inaction-may-be-the-biggest-form-of-action-jerry-brown-25134

Secondly, investing involves transactional costs. Costs that just eat away at your returns. So I’d say – I don’t over monitor my portfolio but I don’t forget about it either. As cliched as this sound, just focus on long term fundamentals and appropriate asset allocation & diversification. It is SOOOO freaking hard to time the market, so I’d rather keep my eye on long term goals. Small tweaks I do when fundamentals and economic climate change, but don’t revamp it often. Sounds like a goal for 2014 going forward?

But don’t confuse ourselves with the below. I am pretty sure it does not relate to investing. It relates to planning for retirement starting today! (Check out RetireMethod.com)

quote-i-never-worry-about-action-but-only-inaction-winston-churchill-37183 quote-inaction-breeds-doubt-and-fear-action-breeds-confidence-and-courage-if-you-want-to-conquer-fear-dale-carnegie-32059

{ 2 comments… read them below or add one }

K S January 22, 2014 at 5:37 pm

Great minds think alike. I just read this articles from The Motley Fool, Singapore.

http://www.fool.sg/2014/01/21/why-it-pays-to-be-patient/?source=facebook

Reply

ChingFoo Lieu January 24, 2014 at 8:47 am

Hey KS, thanks for the compliment :D

Reply

Leave a Comment

Previous post:

Next post: