Here’s this week’s 200 word idea from this Morningstar article on the value of doing nothing.
Michael Bar-Eli et al analyzed 286 penalty kicks in top soccer leagues and championships worldwide. As the ball takes approximately 0.2 seconds to reach the goal, the keeper has to decide whether to jump about the same time as the kicker chooses where to direct the ball. The researchers found that the goalkeeper almost always jumped left or right as they typically choose action over inaction. But, interestingly, the data revealed that the optimal strategy for the goalkeeper was to stay in the centre of the goal.
Just like the goalkeeper, investment professionals too feel compelled to play every trade that is out there in the market. The median holding period of the top 100 stocks by market capitalisation in the U.S. has shrunk to a third from about 600 days to 200 days over the last two decades.
As far as investing goes, there is high value in doing nothing. After all, as Warren Buffett says, benign neglect, bordering on sloth, remains the hallmark of his investment process.
‘”Do nothing” are the two most powerful – and underused – words in investing. The urge to act has transferred an inconceivable amount of wealth from investors to brokers.’ | Morgan Housel