Doing nothing may not sound like a successful investment strategy. However, it has been proven time and time again that less is more when it comes to learning how to invest and building a stock portfolio.
Our minds often equate action with success. That is true in many fields of life – the harder we work and the more we do, the better our results tend to be.
However, it is usually not the best course of action when it comes to investing.
The stock market is a place where something is always happening. Shares move as a consequence of almost every piece of news, whether it has a direct impact on a company's fortunes or not. That can be the election of a new leader, a change in interest rates, a geopolitical development, or the price of a commodity shifting.
When these events occur, we are normally bombarded with opinions about what the smartest move is going forward.
As we mentioned above, it can feel prudent, even prescient, to take action in one's stock portfolio as a result. These urges can be amplified if other investors are taking action. After all, we tend to derive comfort from moving with the herd, rather than against it.
However, this is often a mistake.
How to invest: Less is more
At least that's what one financial expert argues. A piece in the Australian Financial Review this week recalls the work of financial writer Morgan Housel. Housel is famous for his book The Psychology of Money, which is well worth a read if you haven't come across it.
One of the most insightful pieces of advice in the book is as follows:
For most investors: 99 per cent of good investing is doing nothing, the other 1 per cent is how you behave when the world is going crazy.
Doing nothing doesn't refer to the actual act of investing, of course. The more money we can invest in the stock market as soon as possible, the better off we should be in the long run.
The doing nothing refers to changing our strategy.
If you've come to the conclusion that you can afford to invest $200 every month into ASX shares, your optimal outcome will be determined by how rigorously you can stick to that strategy. If you're worried about the impact of the United States' global tariffs, you may feel tempted to pause your strategy and wait until the uncertainty comes back down. Or else for that stock market crash that the tariffs will inevitably cause as the world 'goes crazy'.
Even worse, you may be tempted to sell the shares you've spent years buying and invest in companies that you might think are more immune to tariff changes. Or just keep the money in cash until the horizon is clearer.
Whilst this might seem sensible at the time, Housel reminds us that it is not. Sticking to your guns and doing nothing is almost always the best course of action. The only change you might want to make is to buy even more shares when compelling prices are on offer.
Foolish Takeaway
Remember, the global stock market has overcome almost every kind of calamity in its long history: world wars, global depressions, recessions, inflation, deflation – name the malady, and it has happened. Yet the markets have never failed to exceed a previous all-time high.
Doing nothing can often be the best course of action. That is the principle that we should all use when implementing our investing strategy.
