´´ Value Investing and the Virtue of Being Lazy

Saturday, February 7, 2015

Value Investing and the Virtue of Being Lazy

“I choose a lazy person to do a hard job. Because a lazy person will find an easy way to do it.”
(Bill Gates )

Recently I stumbled across an intriguing Telegraph article  called: "Why being lazy and procrastinating could make you wildly successful"

I found that article so interesting because the assumptions made are very relevant for value investing too.

Lack of Relationship between Effort and Result in Investing

At least in the western society the word lazy connotes something bad and evil. Latest it becomes apparent by popular sayings like; "The devil finds work for idle hands" or "Idleness is the beginning of all vice". At certain professions this might hold true. I am convinced that when a clear positive linear relationship between effort and result in a profession exists, the diligent and hardworking will certainly be better equipped personality wise for any such an endeavor. Unfortunately, for the super smart and restless investors in the stock market (maybe the majority at least that is the way the majority of them see themselves) such a relationship does not exist in the profession of value investing. For the rather reasonably intelligent lazy guy, the lack of the aforementioned correlation between maximum effort and optimal outcome is good news.

In this post I will argue that a certain extent of a lazy personality is a virtue and the pre- requisite of building up a little fortune in the business of value investing on the long run. Thus, not should laziness be loathed but rather consciously embraced. In the world of value investing a lazy personality helps to avoid taking stupid actions just for the sake of being active.

Why the Lazy Personality Prevails in Value Investing

First of all, a lazy and reasonable intelligent personality has the tendency to avoid cumbersome, tedious and strenuous work. Thus, a lazy investor will always concentrate on investments that are easy to grasp and implement. If the scrutinized potential investment is too complex to understand, he will quickly be disgusted off all the pending work of digging into endless footnotes of the financial statement and abandon the idea quickly. The lazy investor cannot be bothered with such a company. By moving on to the next investment swiftly, and not listening to other investors praising the company as being the next Apple stock, possibly the lazy and smart investor just avoided the next Enron. Thus, the lazy investor not only knows Buffet's rule number one, i.e. never lose money, it is rather in his genes.

Furthermore, the lazy value investor wants to complete the cumbersome and tedious work of the quantitative analysis of a potential security quickly in order to get back to the important aspects of live: namely indulging in idleness. He therefore does not overcomplicate things and is a master in only concentrating on the important aspects of an investment. Where the hard working investor still is trying to grasp the footnote 114 Z) of an annual report, trying to figure out the prospective cash flow in 10 Years time and all the other numerous aspects of the investment he deems important, the lazy investor already executed on a similar investment. While the diligent investor is still digging the numbers, the lazy one is enjoying a very long weekend on the seaside. He even does not bother about the future cash- flow, because the company he just invested in is a long standing and viable business with stable cash- flow in the past that has been going through multiple business cycles. When coming home hopefully the lazy investor can be positively surprised by the nice price action of the investment, which he did not expect at all. The diligent smart investor finally figured out that the company is a steal. Unfortunately, the market did as well.

Other Positive Behavioral Traits the Lazy Investor Got

Most importantly, laziness (might the investor be blessed by nature or he acquired the personality by hard mental training) often comes in combination with cognate personality traits that are most important for being a successful value investor. Lazy personalities tend to have a revulsion to hustle and bustle. Thus, to the lazy investor the daily stock market action is just a nuisance, trying to distract him from the important things in life. Lazy persons are rather easy going and patient. Patients (and patients again), should be regarded as the most important personal trait when it comes to value investing. Lazy people do not feel uncomfortable sitting in a room alone and watching paint dry. A sensation not few value investor have when observing the lackluster performance of individual deep value investments over a prolonged period of time. For the diligent and energetic investors such a prospect is just disgusting and off-putting, and the reason why there are so few real value investors. At a certain point in time the energetic and super smart investor cannot stand the lackluster performance anymore and eventually will dump such a holding in order to invest into something more active. Not so the lazy value investor. Over eagerness is an abhorrence to him. Selling a good and still reasonably priced stock just implies the tedious activity of having to come up with a new issue with similar characteristics. Too much work here. The lazy investor is well aware that haste makes waste. He often knows by instinct that the stocks appreciate in price when it is least expected. He cannot do anything about it and he is more than fine with it, because he loves doing nothing.

Another cognate personality trait that helps the lazy investor in such circumstances is that they are often careful analysts and decision makers in order to minimize future work. Nothing could be worse than having to go over a spreadsheet again because of some stupid carelessness. What a waste of time. Thus, they are often very comfortable with any holding regardless what the stock market or fellow investors have to say.

Felxibility and Laziness

In addition, lazy people often tend to be flexible. Although their favorite recreation might be swimming in a lake, they are well aware that it is not a good idea doing so during winter time. Ice skating or reading a good novel is fun too. No problem here. Translated into investing this means that although the lazy investor is generally a deep value investor that prefers to by net- net stocks, he does not mind paying up a little for a stock he came across by chance and has very satisfactory other quantitative metrics (like cash- flow, hidden assets, etc.). Although the lazy and reasonably smart value investor is well aware of the fact that it is the valuation of a stock that counts most, he is cognizant of a stock being or not being formally a net-net stock. He knows about the importance of capital allocation by the management. Compounding interest for him is the 8th world wonder, as he is well aware that a compounding and cheap company allows him to concentrate on more important things in life, like meeting with friends and family, and enjoying a nice glass of wine on the terrace.

Furthermore, a diligent and super smart value investor is often a control freak, which in addition not seldom is overconfident in its own abilities. He wants to do everything on his own. The reasonably intelligent and lazy investor, on the other hand, is more than happy to steal good ideas from other investors he esteems. He happily delegates any tasks where his involvement is not really necessary. Thus, this value investor has much more time on concentrating on the essentials when it comes to investments and can enter and exit any investment endeavor in a much more comfortable and relaxed manner.

Last, but not least, a lazy personality can even be too lazy for being lazy. Just make it like Karthick Venkatesh. He has a 29-character password for Facebook and Twitter. "When I have to work, I just log off from these," he says. "So, whenever I feel like taking a break and using Facebook, I am just too lazy to type my password. Eventually, owing to my laziness, I go back to work and have a really productive day."