The Anxiety of Humanity: Why Can’t We Stay Still?
Realizing that the secret to investment success lies in patience, not action, will completely change your approach to investing.
Many people feel a sense of security only when they are constantly busy. This is also true for investors. However, [what we often overlook is that the greatest enemy in the world of investing is ‘action.’] In this article, we explore how doing nothing can be the key to investment success through the philosophies of Mohnish Pabrai and Warren Buffett.
The Story of D.E. Shaw: Why Did They Fail?
Founded in 1988, D.E. Shaw & Co. consisted of some of the brightest mathematicians, computer scientists, and bond trading experts on the planet. They leveraged minor short-term inefficiencies in the bond market to generate enormous profits. These professionals created an automated trading system, allowing them to earn high returns while mostly playing pool or video games.@note] But this utopia didn’t last long.
D.E. Shaw’s employees wanted to make even more profits and eventually began to delve deeper. They adjusted the existing system to maximize profits, but the result was close to a disaster. Unforeseen economic events occurred, causing them to shift from traditional risk-free arbitrage to the dangerous game of the stock market. In the end, the company almost went bankrupt.
Warren Buffett’s Philosophy: The Virtue of Waiting
In the world of fund management, effort and intelligence do not necessarily lead to success. Warren Buffett succinctly stated at the 1998 Berkshire Hathaway annual meeting: “We get paid not for activity, but for being right. As to how long we wait, we will wait indefinitely.” This statement is simple, yet its meaning is profound. Buffett’s philosophy emphasizes that ‘waiting’ is more important than ‘acting’ in investing.
Conclusion: Cultivate Patience Instead of Action
To succeed in investing, the ability to sit still and wait is essential. It is crucial to suppress the urge to act whenever the market moves. The success stories of Warren Buffett and Mohnish Pabrai show that sometimes, doing nothing is the wisest choice.
Now is the time to practice ‘doing nothing’ occasionally. Observe the market calmly and patiently. The reward will be worth the wait.
Source: TAM, “Mohnish Pabrai: Investing Success: The Case for Doing Nothing”