You might be familiar with the quote from the title from a few years ago. It is of course a play on words that I’ve seen several people use. I believe I first read it from Jack Bogle and as it relates to investing it is of course about not overtrading in response to news or other price-moving factors.
The knee-jerk reaction after the Brexit news broke is a perfect example of this. As the news broke on the night of June 23rd and the futures plummeted I tweeted whether the pre-Brexit close of 2113 for the S&P 500 was just a few days from coming back with the hashtag sometimes markets overreact. This is an idea we’ve been discussing for years here. I tweet or blog the same sort of comment in the middle of these puke downs about fast declines tending to snap back quickly every time. I’ll do the same thing in the next one and of course there will be future puke downs.
Last week I stumbled across Just Don’t Do It by Tim Hanson via Abnormal Returns which is about the benefits and potential success by doing nothing. The money quote;
Second, define success differently. The financial industry standard in investing is to define success by measuring return against a benchmark, goading investors into trying to beat the market over shorter and shorter periods of time. But the fact is that most investors who try to beat the market are putting the nail in the coffin of that very aim.
I would add several points while at the same time tweaking the sentiment.
A point that I have made many times before that I believe is a crucial building block of understanding is that if you build a properly diversified portfolio and have an adequate savings rate and do no trading, you have a very good chance of having enough money when you need it (presumably retirement). The idea here is that the average annual returns that are going to occur regardless of what you do and will at the least, get you most of the way there (assumes not repeating truly self-destructive behaviors which might be a big assumption).
Leave A Comment