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Why Doing Nothing Is So Hard To Do?

Remember: Patience is a virtue

As you know we review each client portfolio a minimum of once per quarter. Quite often our advice is that we do not recommend any change. We have had a few comments that clients had expected more changes as market conditions shift. We would like to elaborate as to why “no change” is very often the best course of action when reviewing a portfolio. Understand that this goes against what most people want to do when one of their investments is not “performing” well. The first reaction most people have is that they need to change something; when history has proven time and again that it is almost always the wrong thing to do. Remaining patient and doing nothing is very difficult to do (especially in this age of media hype which out of necessity always focuses on and magnifies current events), but it is the hallmark of the great investor. Anyone attempting to invest for the future based on the recent past is falling into the classic trap of simplistic market timing and is participating in the most basic form of speculation. I hope the following helps!

“Investors are the people who buy for fundamental values. Speculators are those who buy in the hopes of selling later to someone else at higher prices.”
Sir John Templeton

First, let’s review how we select investment managers. It is quite different than selecting the best fund over the last period of time (1 month, 1 year, 3 years, etc.). As professional advisors the very first thing we review is appropriateness. Are the investments appropriate for you, your goals and are they truly a fit for your long-term financial plan (As opposed to are they “hot” in today’s market). The second criteria is do we personally understand the money management process, and do we believe the investment managers to be disciplined and worthy stewards of your most serious money. We then build long term wealth with the few investment managers that pass both tests and construct portfolios of complementary investment management styles.

If your goals have not changed (which is a way of saying: if your life and the lives of the people you care about haven’t changed) and if your portfolio is appropriate to your goals, why change it? The following is a quote from Peter Lynch who is arguably one of the greatest and most successful investment managers of our time.

“Whatever method you use to pick stocks or stock mutual funds, your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed. It isn’t the head but the stomach that determines the fate of the investor.”

That doesn’t mean that we just blindly hold forever. Although we can’t move the markets, we are vigilant to see that our investment managers are performing as we would expect; given the market environment. We keep up to date on their current strategy and monitor performance versus appropriate benchmarks. We also monitor your portfolio to ensure that it continues to be appropriately balanced. Over the past year we have also started to monitor portfolio allocations every 6 months based on investment and sector styles such as Growth, Value, Aggressive Growth, Canadian, International etc. We then advise to re-allocate as certain styles or sectors are out of balance. This service will be expanded to include more client portfolio’s over the coming year!

The bottom line is that once you have a properly set up portfolio, managed in a disciplined way that suits your goals; DON’T CHANGE IT! Almost all changes that clients want to make come about because a certain investment style or sector is out of favour and almost ALWAYS leads to a lower rate of return in the long term. That is why we go to great pains to set up a proper portfolio with great investment managers in the beginning. The goal from the outset is to try and minimize future changes and let the investment managers do their work. So during down markets like this continue to have faith. One does not have to expect a repeat of the remarkable bull market of the 1990’s to remain optimistic about the global economy’s ability to continue to grow and to generate new wealth. Our goal is to help you participate fully in the market recovery and the ongoing process of wealth creation in the years ahead.

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