To do nothing is to do something.
"Beware the quiet investor."
The ability to do nothing is a great luxury. For many professional investors - maybe most - doing nothing can get you fired. Between 1998 and 2008, some investors confessed they could not pull client money from Madoff's secretive hedge fund — his numbers were just so good; they'd lose their jobs. (Bernie Madoff, of course, being the wall street investment manager made infamous for bilking thousands of investors in a Ponzi scheme).
"Beware the quiet investor. While others speak, they watch."
In 2005, Harward Marks - co-founder of the highly revered Oaktree Capital - began to accumulate a war chest of investor capital. He believed markets were overheating and that a correction - a dislocation- was inevitable.
"Beware the quiet investor. While others speak, they watch. When others act, they plan."
For years - literally - Marks did nothing with this committed client capital, save for attracting more. Markets soared. With each year that passed, investors were, in effect, losing the opportunity to make returns with that money. The pressure to invest was crushing. Other managers would have been relieved of their position. By 2008, Oaktree had amassed $11 billion of capital commitments in a special fund. Not one cent had been drawn and invested.
"Beware the quiet investor. While others speak, they watch. When others act, they plan. And when the moment is ripe, once greed gives way to fear, they strike."
Then in 2009, widespread panic gripped the global markets. The financial crisis was underway; investors sought safety over all else. Marks did not. He activated his client's commitments. He called in the $11 billion that was patiently waiting. And Oaktree capital invested half a billion dollars each week for 15 consecutive weeks.
Once the dust settled, once markets normalised, the returns for Oaktree were breathtaking.
Marks' success through his initial inaction was only possible because of the broad wilful blindness by other investors.
Investor blindness is rife.
The story of WeWork - the shared workspace startup - personifies this blindness. The slow-motion catastrophe was watched from the inside by some of the world's best-known investors, including Japan's SoftBank and venture capital company Benchmark Capital. They stood there for months or years, unable or unwilling to move.
Investors are often utterly blind to the evidence that is right in front of their eyes. They adopt a view, then embody that view even in the face of evidence and rational argument. When gold isn't a strong inflation hedge, its supporters still believe it is. Bond investors have been predicting an increase in interest rates for more than a decade in vain. Sceptics of Amazon, who have long branded the company absurdly expensive, have lost significant sums.
When an investment you own - or one that you despise - becomes a part of your identity, blindness occurs. Gold isn't something you buy; it's something you become addicted to. When you believe interest rates will rise, you become a bond bear. You're not just concerned about Amazon; you're part of the value-investing community, which regards itself as rational in an otherwise chaotic financial world.
You've turned into a true believer in your investing theory, clinging to it as strongly, firmly, and unquestioningly as if it were a religion or ideology. The longer you possess something and talk about it, the more it becomes a part of you; changing your mind feels like losing a piece of yourself.
People should make investment decisions based on their goals and the characteristics of the investment options available to them at the time (things like valuation and expected return). But that's not what people do. People's lifetime investment decisions are heavily anchored to the experiences those investors had with different investments in their own generation – especially early in their adult life.
The value you place on an object will change drastically depending on whether or not you already possess it. All of this makes you wary of selling a good investment that has gone bad. It makes you suspicious of seeing a good investment go bad. It can also keep you from realising that some assets are so bad that you should have avoided buying them in the first place.
When you are intentionally blind, you don't give a damn about the accuracy of what you know and learn. Instead, you strive to persuade yourself that you're right.
Rather, become the quiet investor. Watch. Plan. Strike.
