The Do Nothing Strategy Is an interesting concept for investors, though it is arguably misunderstood. The idea is often attributed to Charlie Munger and Warren Buffett, both of whom were known for their patience. Yet, it is not exactly the case that they will do nothing. Indeed, there are often warning signs from traders claiming that “Berkshire is selling” as an omen that a bear market – or worse – is coming.
So, if the most famous proponents of “doing nothing” are usually “doing something,” what does it mean? The late, great Charlie Munger actually explained succinctly when he said, “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.” What he means is quite simple: traders and investors fail when they act impatiently. They will either sell too soon, buy too late, or panic when it’s not time to panic.
Retail traders can face headwinds
The advice is important in an era where we see so many retail traders. A lot of people are trying their hand at trading, and they end up overtrading, trying too hard to time the market perfectly, chasing losses, and trying to get to preconceived profit goals. The market can be kind, but it can also be brutal, especially for the inexperienced.
But going deeper into what this means for an investor, consider the Great Recession of 2008, where, most famously, people lost massive amounts in the stock market. Or did they? Because, when you think about it, the only people who lost money in 2008 on stocks were those who sold.
Consider what we mean: In 2008, Apple’s stock price started the year at approximately $6. With the collapse of Lehman Brothers in September 2008, Apple’s stock fell to around $3 by the end of the year (these are all approximate values for the illustration, but they aren’t far from being accurate).
Anyway, so let’s say you had 10,000 shares of Apple at the start of the year, worth about $60,000. That was worth $30,000 by the time we were all feeling the effects of the financial crisis. But the loss would only come if you sold; you still had 10,000 shares. Now, consider that Apple’s stock price at the time of writing is $271.42. That is what is meant by doing nothing and not panicking. And make no mistake about it, many people did panic.
Luck is needed
Of course, you also need a little bit of luck. Not the type of luck you wish for when you buy lottery tickets, but the luck of your circumstances. Many folks lost their jobs in 2008, and they would have been forced into selling their investments, so we aren’t disparaging everyone who felt compelled to cut their losses during that tumultuous time.
Overall, the important thing is to have a long-term view of the macro. Right now, we are told that everything from Donald Trump’s tariffs to the War on Iran to the massive debt of the United States (approaching $40 trillion) will lead to a calamity. And that might well be true, but the winners – if such a calamity were to take place – will be looked back upon in the same way as we look back at those in 2008 today. They will hold their stocks in Nvidia, and not worry about the crests and troughs, bear and bull markets.
You can, of course, trade your investments. Perhaps you have an inkling that things will turn sour, and you can sell for a profit, potentially buying back later at a discount. But that comes with added risk, and it can be an additional challenge for those who aren’t experienced. But there is no real skill required in holding for the long-term if you can. Just ask