"There is a time for all things, but I didn't know it. And that is precisely what beats so many men on Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying and selling stocks daily - or sufficient knowledge to make his play an intelligent play." --- Jesse Livermore
There is a certain degree of nobility that comes with the act of doing nothing in the business of finance. It is a counter-intuitive trait that does not digest easily with most investors. Yet it is an absolute key building block in the act of creating any formidable wealth within a portfolio of stocks.
We are looked at from a very early age not by what we accomplish through stillness, but what we accomplish through action. It is believed that in action is where victory is born. If you are injured by a certain action, then you simply take another action to "get through" your injury, as action is the only way to victory.
If, on the other hand, you are injured through the act of stillness, you are automatically labeled as being lazy, incompetent and unable to perform the essential task of taking action. The very act of daydreaming. Imagining. Introspection. They all run completely counter to the key attributes that create success according to popular perception.
What is missed by those who constantly preach action, whether in popular books, blog postings or in any form of media is the moments in between when the act of stillness leads to a clear path of action. You cannot have a reason to act at every single moment. Then your actions become diluted within a sea of inconsequential motion. Action should have purpose. And purpose is derived through stillness.
In my case, in particular, I have clearly entered a point in the life of the current portfolio holdings (WMIH, HH, IWSY & KFS) that any action taken will be forced. There is nothing to do but sit. Volume is extremely low as all the current portfolio holdings are in between catalysts. To force an action here by attempting to discover momentum that would create basis points would be foolish. It is a negative expected value proposition as it is difficult to duplicate with a high success rate AND it takes away from the key focus of the portfolio that is backed by a strategy seeking asymmetric (overused financial jargon, but appropriate) opportunities.
If you are in possession of a semi-competent strategy that exchanges, as an example, 1 unit of risk for 8 units of rewards, then you would be foolish to seek to improve on that ratio by adding in a peripheral "trading" strategy to achieve outperformance when the primary strategy is moving sideways. The reason for this is multi-faceted, with its roots deep in individual psychology.
The core of the problem lies in the potential to get distracted away from a strategy that has been proven to have a high success rate. Additionally, a drawdown in both core strategy and peripheral strategy puts added pressure on the core strategy. Pressure that could deviate away from the mechanics of the strategy unnecessarily, creating a tremendous degree of opportunity cost and having the potential to derail the strategy completely.
The act of investing is a very delicate balancing act in that a vast majority of gains are created in a very short amount of time during any calendar year. In my most successful years, the core of my gains have come down to a handful of days during the year. The rest of the time has been spent in relative stillness. What destroys even the most experienced investors are those moments when they should be sitting still but dilute their actions through inconsequential movements.
