Those who understand music know that a break, or silence, is as important as the sound. In fact, the melody is more accentuated following the break. Doing nothing would never appear on your to-do list, and it’s perhaps unimaginable in a project plan. Inaction has the power to help you ignore all the noise and conserve your resources to be better prepared for the action. The do-nothing strategy is not about being ignorant about what you are up against; it’s a conscious choice resulting from evaluating the opportunity costs of action.
“Lethargy bordering on sloth remains the cornerstone of our investment style.”
— The Essays of Warren Buffett: Lessons for Investors and Managers
Jeff Ptak of Morningstar conducted a simple experiment: he bought and retained a basket of equities. He then compared this with the S&P 500 over three different 10-year periods. The first study ran April 1993 through March 2003, the second over the ensuing decade, and the third for the following 10 years, concluding March 31 of this year.
The Do-Nothing Portfolio beat the index in the first trial, then matched the benchmark during the next two. It generated a 12.2% annual return over the 10 years ending March 31, 2023, finishing in a virtual dead heat with the actual S&P 500. This means a $1,000 investment in 2013 would have given you $3,000 in 2023, just by doing nothing.
Below are the results from a growth-of-$10,000 exercise, reprinted from Ptak’s article.
A few points from this article about patient investments I found particularly useful are:
Avoid the rush, The fewer decisions investors make, the better.
Don’t be afraid to let winners run. Some will continue to prosper and become a major share of your portfolio. Overall portfolio risk is unlikely to climb significantly.
Most investors have more stocks than they need. For adequate diversification, a single portfolio that holds a few dozen positions will suffice. There’s no harm in being more widely diversified, but neither is there meaningful benefit. The watchlist I compiled is always good reference to build your portfolio, and you can find the latest one here.
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