Sunday, June 22, 2014

A Fine Line Between Patience and Laziness

"Perhaps the strongest feature in his character was prudence, never acting until every circumstance, every consideration was maturely weighed; refraining if he saw a doubt, but, when once decided, going through with his purpose, whatever obstacles opposed." - Thomas Jefferson on George Washington

To be an investor is to be a decision-maker. Buy or sell. Take action or do nothing. Invest in Stock A or Stock B. 

The frequency and weight of the decisions can be overwhelming at times -- particularly if you're investing other people's money or recommending stocks for people to buy or sell -- but even as an individual investor, you're still making decisions every day about your portfolio, whether they're explicit or implicit in nature.

As a friend of mine likes to say, "Any day you aren't selling a stock you own, you're buying it." 

His point is, even if you aren't actually buying more of the stock each day, the very act of holding implies you remain confident in the investment's prospects. Though you're taking no action, you are deciding there's more upside.

Over the longer-term, our investment performance reflects the wisdom (or folly) of our decisions, so it's critical to be aware of the decisions we must make. 

By no means is this a call to more trading activity, but rather to more thoughtfully consider each of your investments by asking questions like:
  • If I were starting over, would I buy this stock at this price today?
  • Am I holding onto this stock for the wrong reason (e.g. emotional attachment, etc.)?
  • What do I know about this company that other investors don't?
Asking these types of active questions is particularly important for long-term investors like us because we're prone to errors of omission -- that is, failing to take action when action is prudent. 

There's great value in being patient, of course, but there's a fine line between patience and laziness that's important not to cross. By actively considering your investments -- even if the decision is to do nothing -- it reduces the risk of being lulled into holding onto an overvalued stock or onto a business with a deteriorating competitive position. 

Stay patient, stay focused.


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