Sunday, 16 February 2014

Busy Doing Nothing

Take it from Bing
The current markets are all over the place - up and down (mainly down). My last trade was at the end of January, but it seems like ages ago. In fact, January was quite busy - mainly selling due to the plump valuations then on offer. How things have changed.

However, the default activity for a DIY Income Investor is looking out the window, wondering... (well, in my case wondering where to go on holiday.)

So, although it is interesting to see what the market is doing, that doesn't mean that you need to take any action. The preference is for inaction: being busy doing nothing - like the team in A Yankee in King Arthur's Court.

It's probably a quirk in our psychic make-up but doing nothing can sometimes seem like hard work. There's always that thought at the back of your mind that perhaps you should be doing something. If you read the financial press you will be bombarded with information as well as recommendations to 'buy' and 'sell': chatter and spurious advice.

But as long as the income is flowing into your portfolio, and there are no obvious threats to your investments, there's really no need to tinker. I make one or two exceptions, to retain my sanity:
  • first, if things really go really pear-shaped (think 'Northern Rock'), just get out
  • second, and more commonly, if something has gone up quite a lot in value (and the current yield is lower than the portfolio average), sell and find something with more potential

So, once you are fully invested (which I am most of the time) there's not much to do. It's only when some cash becomes available - due to a sale or an annual contribution of cash to an ISA or SIPP - that you need to gear up and look for something interesting.

So, figuratively sitting on your (trading) hands is an activity that you will need to learn to do, although it might seem a little boring. But it is usually a good thing to do less trading rather than more, as studies have shown that over-trading leads to poor results. For example, research from Finland shows that the least frequent traders among households earned average monthly gross returns of 2.36%. The household investors who traded the most frequently earned 1.10%. The conclusion of this study was: "Overall, the results suggest that a significant fraction of household (...) investors trade far more frequently than they rationally should, and that this excessive trading has a substantial negative effect on their portfolio returns."

This phenomenon is reflected in research elsewhere.

Interestingly other Finnish research also discovered a link between owning a sports car, speeding tickets and trading frequency: thrill-seeking is part of the equation, it seems.

So don't be afraid to switch off and tune out...

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Thank you for the interesting and informative post. Thankfully most of the people who's blogs I read are of the inactive type.

    I have to say though that investing life is not necessarily that inactive as you need to keep up to date on reports from companies you own, watch the dividends build up and (if you are in the re-investment phase) research on where to re-invest.

    I hope you enjoy taking it easy, and watching the money roll in.


    FI UK

  2. You are quite right about the markets being all over the place. There appears to be little joined up thinking between the reality of a real business with profits and some growth attached (example supermarkets) and speculative nonsense pie in the sky shares (example Twitter). I assume eventually the speculative money will be running to the hills (back to the supermarkets etc) when the city has had enough of getting it's fingers burnt and losing pension contributions etc from all the poor lemmings doing a hard day's graft.

  3. Inactivity is a good practice but a difficult discipline to conquer!
    Markets? Very muddled and no clear ideas around; who knows what effects are going to be when QE ends coupled with the fact that "expected inflation" hasn't arrived!
    Anyway, come March/May the winter buying should be over and contrarians can plan to do their buying between May and September!!