The Importance of Doing Nothing

The Importance of Doing Nothing

In this day and age of instant gratification, constant information flow and the general speed of doing things, people constantly need to be kept entertained and constantly need to be “seen to be doing something.” If you look at the first graph below you will see the Monster Beverage share price from inception in 1985 to date. If you invested $ 10 000.00 in December 1985 into the share, in June 2018 it would have be worth around $ 4 300 000.00 and this is quite a bit lower than its peak of $5 260 000.00.

In the recent Berkshire Hathaway annual investor feedback, Charlie Munger stated “that when there was nothing to do, Warren Buffet was really good at doing nothing”. The problem with the graph above is that because of the scale some very large reductions in value are not shown, and it is during these reductions in value, that people tend to want to “do something” and it is here where value is lost. Another one of Warren Buffets famous quotes is that “the big money is not made in the buying and selling, but in the waiting.”

Even the second graph is quite difficult to read. By March 1986 your $ 10 000.00 would have been worth $ 27 000.00 (a tidy profit). Unfortunately in October 1987 your $ 27 000.00 would have reduced to $ 2 300.00, and in January 1996 your investment would be worth $ 770.00. By this time most of us would have thrown in the towel and just taken what we could salvage out of the investment and disappeared with our tails between our legs. From January 1996 until April 2003 our investment has gone up to $ 6 100.00

In October 2007 we think we have hit the jackpot with an investment worth $ 870 000.00, but in August 2008 we are back to $ 274 000.00 which is a lot more than our initial investment but a lot less than the $ 870 000.00 it was a few months previously. So what to do now? Panic and sell!! If you did that you would be kicking yourself, because in July 2012 your investment would be worth $ 1 863 000.00.

Unfortunately investment growth is never linear; it is filled with peaks and troughs. If the basic fundamentals for the company haven’t changed, for heaven’s sake, don’t sell the share. The same holds true for unit trusts and other investments. Sometimes doing nothing is the toughest thing to do but it is usually what is required in your investment portfolio.

Tagged with: , ,