´´ Inactivity: Why Doing Nothing Should Strike You As a Rational Behavior in Investing

Saturday, August 6, 2016

Inactivity: Why Doing Nothing Should Strike You As a Rational Behavior in Investing

Chris Brown from Tweedy and Brown once told an anecdote about an investment manager he had interviewed. The money manager proudly claimed that he made 250 company visits in one year. Gosch, Chris thought “What did this guy do? Drive by the headquater and wave?”

Shortly after, another international manager claimed that his team visited 400 companies in a year. Again, Chris thought, “What did these guys do? Fly over the headquater and wave?”

"Life seems but a quick succession of busy nothings." (Jane Austen)
He went on to note that the record of the last money manager had held only for a few years. Another money manager claimed that his “grass roots” research team had made 4,000 company visits in only 12 months. The universe of investible stocks for the research team was only 400. This means they visited each one of their actual and potential investee companies 10 times in that year.

That is what I call the ultimate hyperactivity. But certainly nothing productive could ever have come out of it, as it is even impossible to read such a number of research reports a year that are worth your time.

Hyperactivity: The Vice in Stock Market Investing

The financial industry is one that obviously favors activity over inactivity. It appears to give them a buzz. It is the only explanation for the hilarious amount of company visits by the money managers mentioned before. And it explains the dramatic rise in portfolio turnovers in the last decades.

Activity signals that a money manager is dilligent and staying on the ball, that he is decisive. That he has got a view about the state of the market and if his holdings are going to appreciate or depreciate in the immediate future.

Imagine an instituitional investor just sitting on his holding. The majority of his peers would view him as indecisive and clueless. And I reckon even his clients would be irritated. Inactive money managers are viewed as brain dead in an hyperactive and information overloaded world.

Financial analysts have the same bias towards activity, but for slightly different reasons. That should come as no surprise, because they are eager that investors buy or sell their recommendations. That is how they get paid.

Just imagine a tech analyst walking into a monday morning presentation to a bunch of money managers telling them to just sit tight the next few months because the whole sector is severely overvalued. This guy would get tarred and feathered by the rest of his team, and certainly would leave the clients bewildered.
"Doing nothing is awfully hard work" (Oscar Wilde)
In our times of information overload, activity is turning more and more from a compulsion into a kind of addiction. Only does the majority of people fail to acknowledge it. We are living in a society that praises us for being active. Inactivity is being seen as irresponsible, being on the worng track and wasting time.

It is a world of distraction we are living in. Silence and stillness freightens humnas like hell. People will do anything to protect themselves from doing nothing like creating noise, frenetic activity or even enduring pain.

People Prefer To Hurt Themselves Over Doing Nothing At All

An experiment conducted by psychologists from Virginia and Harvard Universities verified just that. The great majority of the participants found it unpleasant and uncomfortable sitting in an empty room for 15 minutes doing nothing. But the most staggering of the studies' findings was that many participants even preferred an unpleasant experience over total inactivity. 

In order to find out if people would rather hurt themelves over doing absolutely nothing, the students were given the option of administering themselves mild electric shock. Before the experiment they had been asked to rate how unpleasant electro shocks were to them.  After receiving a demonstration of the electro shock the majority of the students said they would pay to avoid them.

Much to the researchers' surprise, 12 of 18 men gave themselves up to four electric shocks in 15 minutes, as did six of 24 women. One outlier even pressed the button 190 times.

"What is striking is that simply being alone with their thoughts was apparently so aversive that it drove many participants to self-administer an electric shock that they had earlier said they would pay to avoid", the scientists write in Science. 

Value Investing And The Virtue of Doing Nothing

It is doing nothing that leaves us the time to think about what is really important in business life and life in general. While keeping us busy with "nothings", things that do not really matter, parts us further and further from the means end.

It is high time that the financial industry stopped equalling bussyness with productivity and superior outcome. Because in the space of stock market investing it is not the case. Their is no correlation at all between activity and performance. Quite the opposite is true. Studies have shown over and over again that activity hurts long- term performance.
"To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual." (Oscar Wilde)
Most people cannot stand inactivity. Instead they keep busy, and even prefer to hurt themselves. They do so in order to push their troublesome demons away. Activity makes them feel better and even virtous. They are stressed, exhausted, but instead of calming down they are running faster, although they are not even sure if heading to the right direction. For many people inaction is the breeding ground for doubt and fears. From their perspective the cyberspace is a boon. Because it allows them to distract from their fears 24/7.

But is it not just a denial of the viscitudes of their existence? And will it not work only for a certain time? Because sooner than later it will haunt them. The demons they push out of the door are going to reenter through the window. People succumbing to frenetic activity put in place a viscious circle of increased anxiety that leads to increased activity and inferior portfolio performance.

The great danger of our times of information overload, permanent connectivity and hyperactivity is that we eventually lose the connection to ourselves. Becoming strangers to our feelings and our needs. And finally loosing sight of whom we really are, as a human being as well as an investor.


Five reasons why we should all learn how to do nothing by Oliver Bureman (Guardian)

Shocking but true: students prefer jolt of pain to being made to sit and think by Ian Sample (Guardian)

People Prefer Electric Shocks to Being Alone With Their Thoughts by Matthew Hutson (The Atlantic)

Christopher H. Browne; VALUE INVESTING and BEHAVIORAL FINANCE; Presentation to
Columbia Business School Graham and Dodd Value Investing 2000; November 15, 2000

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