The Art of Doing Nothing in Investing: The Secret Sauce Behind a Smart Investment

People have a tendency to believe that the state of being active is directly correlated to value creation.

 

Brooklyn, 1893: Anne Scheiber, born in 1893, was an auditor at IRS and pocketed not more than $4,000 a year. Being a Jewish as well as a woman, she was never promoted in her career. After having retired in 1944 with a lump sum amount of $5,000 and an annual pension of $3,100 per year, she had nothing but all the time to study and analyze the financial statements of the companies.

 

Using her lump sum as well as pension amount, she started investing in companies that she believed would continue to blossom and fill her bags with annual dividends. A few of the companies that she had chosen to accumulate were Coca-Cola, Pepsico, and Exxon.

 

Anne Scheiber

 

During this process, despite the several wars and sanctions, drawdowns and booms, bubbles and busts, she did nothing except holding her stocks for the next 50 years. In 1994, when she passed away after her stint of 101 long years, she donated her fortune of $22 Million that she had amassed by investing in those companies.

 

Image: Anne’s Portfolio in 1995 | Source: Merril Lynch
Image: Anne’s Portfolio in 1995 | Source: Merril Lynch

 

With a meager pension amount and savings, clearly, the art of doing nothing made her enjoy the compounding benefits. After all, she chose not to interrupt her compounding engine for 50 long years. That’s it. There was no rocket science.

 

Manhattan, 1877: Years before Anne Scheiber was born, the year 1877 witnessed the birth of a gentleman – Jesse Livermore. He was famous for his monumental wins and defeats by virtue of his excessive tradings in the stock market. After having built his fortune of $100 Million in the 1929 market crash, he continued playing his bets and lost everything in 1934. Certainly, the urge of doing something punished him badly and made him lose his money several times throughout his trading career.

 

Eventually, in 1940, he took his own life by committing suicide. End of the story.

 

Well, the sole purpose of showcasing the above stories is to tell you that the act of doing nothing honored Anne Scheiber considerably throughout her life.

 

In a majority of disciplines, the results we achieve are mutually dependent on the amount of activity we do. To be a better writer, one needs to write often while switching the imagination from one discipline to another, thinking about what might make sense to the reader, decide on a theme and set up a premise. That’s how one gets better with every write-up.

 

To be a better batsman, a cricketer needs to venture out, practice 10-14 hours a day, explore various techniques to hit the ball, getting better with every shot. And that’s the reason that Virat Kohli is one of the finest cricketers in the Indian Cricket Team. Evidently, these examples justify that more is the activity, the better you become.

 

People have a tendency to believe that the state of being active is directly correlated to value creation. But, I believe that investing is one such discipline where the ones with the least amount of efforts end up generating the most extraordinary results.

 

Let me tell you something really interesting.

 

Instead of buying his first stock in 1942, had Warren Buffett invested those $114.75 in an index fund of S&P 500 and reinvested the dividends, he would have turned it into $400,000. With a simple strategy of doing nothing, had he gone on a vacation and never checked his account thereafter, the tailwinds of American Economy would have made him accumulate four hundred thousand dollars without any effort. That’s the art of doing nothing. Over time, it turns the odds of success in your favor. 

 

“If you wrap your head and your attitude and your mentality around a do-nothing approach, I think that alone is probably the most important thing that individuals and professional investors can think of.” 

 - Morgan Housel

 

The hardest part of controlling our temperament to act is to let go of negative emotions that endorse activity. And being a human makes it really hard to ignore them. In a volatile or a panic-stricken environment, our emotional reactions come into the picture, derail our ability to analyze, alter our decision-making framework and increase our urge to act.

 

In the US, when Fidelity Investments (Peter Lynch used to be its star fund manager) conducted its own research to find out what kind of investors accomplished the highest returns, it turned out that the ones who had completely forgotten about their investments achieved the extraordinary results. Similar stories are available in Indian context too. There are people who applied for IPOs during the 1970-80 era, did nothing henceforth and left behind the portfolios worth crores.

 

Just have a look at the below tweet thread by Vikram Chachra which truly justifies the subject line of this blog post.

 

The Art of Doing Nothing in Investing: The Secret Sauce Behind a Smart Investment

 

In conclusion, don’t let your emotions play with your investment results. The outcomes can be highly devastating.

 

After all, The Art of Doing Nothing is one of the best strategies to build a long-term wealth.

 

Originally Published in RichifyMeClub

 

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