Breaking news — sometimes it’s better to do nothing
“Don’t just do something — stand there” is a mantra often associated with Ronald Reagan, the US president who personified masterly inaction. This approach helped Reagan, pictured with his wife Nancy, to resist populist demands that “something must be done”.
Everyone lost in the race this time, but those who held lost the
Today investors may also gain from a wait-and-see strategy. Brexit and other surprises have caused me to trade far more than usual.
New research, passed to me by Steve Forbes, managing director at Alan Steel Asset Management, is not encouraging on this point. It examined three groups of US investors: those who traded less than 10% of their portfolio, known as the “buy and hold” group; those who traded up to 50%, the “actively managed” group; and those who traded more than 50%, the “aggressively managed” group.
I would usually be in the first group but have probably strayed into the second, spurred on by the torrential flow of news. This is despite the fact that I have no desire to be a “day trader” and regard short-term punts as little different from gambling. The reason for the distinction is that few shares go to zero but most betting slips are worthless at the end of a race.
Now here’s the really bad news. Over six months, Forbes tells me that the “buy and hold” group made a small loss of 0.5% after dealing costs, the “actively managed” group were 6% down but the “aggressively managed” lost an average of 12%. It just goes to show that busy bees don’t always make honey and chasing the news can be bad for investors’ money.
Quote courtesy of The Sunday Times
Sunday 23 October 2016