Just over a year ago I sold my house in a beach suburb. This was for personal and practical reasons, as the suburb was quite remote and made commuting difficult. I really enjoyed living there, and while it is better now from a personal and practical point of view, and more central to many amenities, it has also to a certain extent reduced the quality of my investment decisions. It was a beautiful area with great waves for surfing and was just generally very peaceful and relaxing. The area I now live in is pleasant and has its own beauty, but does not quite match. You may be more puzzled by my statement that the quality of my investment decisions has reduced, so let me explain:
Warren Buffett has on many occassion said that investors would be better off if they received a punch card with twenty tabs, and that was all they had for their investing life. You would certainly be very careful as to which stocks you chose, and would reduce the temptation to trade in and out of stocks. I believe that we often trade in and out of stocks due to boredom, or to tell ourselves that we are doing something useful. In reality the best thing we could be doing most of the time is nothing! It is though difficult to explain to significant others and family that you have been extremely busy doing nothing, but even Charlie Munger has said that the greatest contribution you can make to your portfolio is inactivity.
What he meant by inactivity was in terms of trading, not work. You should continue to read, research and keep up to date with company filings, industry shifts and business trends, so sitting on the beach is not the way to make a million.
However, I do sometimes find that I do not feel like I am actually working or making progress unless I actually trade and buy or sell stocks, no matter how much other work I do.
Now, getting back to that beach suburb, I did find that when I had been sitting at my desk for some hours and then took a break to go for a surf, it accomplished a few things:
- Exercise, because a healthy body equals a healthy mind, right.
- A break away from stock prices and the endless movement of stock prices. You cannot monitor your portfolio in a raging sea. Well not yet anyway..
- Time to reflect. You realize that the stock you have been itching to sell because it has not moved in price for six months, is not a bad stock, it is just that the market is doing what the market does, trying to trick you into making irrational decisions.
With a refreshed mind and body, I would usually happily go back to reading and research, the need to ‘do something’ had abated.
Now, not everybody lives in a beach suburb with good waves, so we all have to find our own ways to take a break when the need to ‘do something’ at all costs becomes too strong. I have found the following are quite good – going to a local coffee shop for a really good coffee, going for a walk, reading a non-investment related book or going to the movies. Personally I find the best solutions are those that involve some exercise, but walking to the coffee shop is the best of both worlds.
I think that getting away from the markets is especially important when you are not really 100% sure of a decision to buy or sell a stock.
So what do you do to refresh your mind and improve your chances of becoming a Dividend Tycoon?