Investing

THE VALUE OF DOING NOTHING

 Nothing from nothing leaves nothing

You gotta have something if you wanna be with me …

Don't you remember I told ya, I'm a soldier

In the war on poverty, yeah

-- “Nothing from Nothing,” 1974

-- Billy Preston & Bruce Fisher

When Hannibal crossed the Alps, invaded Italy and inflicted a disastrous defeat on the Romans at Lake Trasimene in 217 B.C. the Romans had their backs to the wall.  They elected Quintus Fabius Maximus dictator, unchallengeable general of all their armies, and he immediately got busy doing – nothing.  He knew that Hannibal’s supply line stretched all the way back to Carthage.  Time was on his side, and against Hannibal.  All Fabius needed to do was harass Hannibal, cut his supply line, and wait for Hannibal to make a mistake.  The longer he waited, the more certainly Hannibal would run out of supplies and make some mistake.  By waiting Fabius robbed Hannibal of the advantage of the offense, and forced him (with his weaker forces) on the defensive, unable to concentrate and use his forces to their full advantage.

It took fourteen long years, but Fabius won by waiting. Because of this performance Fabius was awarded the surname “Cunctator” – the Delayer.  Ennius wrote, “Unus homo nobis cunctado restituit rem” – One man by delaying restored our fortunes.[1]

At the first, however, he was not so popular.  The party in Rome that demanded immediate action accused him of every failing from stupidity to cowardice.  Fabius’ genius lay in ignoring them, and doing nothing.

Like every other successful general in history, Fabius knew the possibility of victory always improves when you pick the time, ground, and occasion of the battle, forcing the enemy to react to you.  Doing nothing until conditions run your way stacks the deck in your favour.  In short, doing nothing works far better than doing something, until the right opportunity appears.

THERE’S DOING NOTHING,

AND THEN THERE’S DOING NOTHING

Modern life has made us all victims of a metastasised version of the Protestant work ethic.  Rather than making work redemptive, it makes it all-consumptive.  It whips us constantly to keep us slaving – keep busy there, don’t stop.  This perverted work ethic sends us down the wrong road, both in human and strategic terms.  There come times when doing anything is worse than doing nothing. 

Actually, there are several kinds of “doing nothing.”  Often doing nothing amounts only to waiting for our dispositions to bear their fruit.  But the “doing nothing” I mean is never born from lack of imagination or paralysis or cowardice.  We deliberately choose it as the response best fitted to our circumstances.  It is not a merely passive strategy, but an active choice

DOING NOTHING AS AN INVESTMENT STRATEGY

At first glance it may sound like the stupidest thing in the world, but doing nothing often ranks as the very best investment strategy possible.  “Doing nothing” appears less stupid when compared to “doing something wrong.”  Contrast, for example, “doing nothing” with “making a big mistake and losing a lot of money.”

Obviously I don’t mean that doing nothing is always the best long term strategy.  If you sit back and do nothing forever, your assets will quietly shrink and wither on the vine.  This is especially true for US dollar denominated assets, because the US dollar is in a primary downtrend and will remain in that primary downtrend for a long, long time. 

Nor do I mean “doing nothing” motivated by cowardice, fear, or mere want of any better idea.  Rather, when no attractive investment choice presents itself – when every alternative looks brown around the edges and promises only a small return – you will gain a far greater return by simply doing nothing.  Wait patiently for a genuinely profitable opportunity that offers high rewards with low risk. 

Contrast this strategy with what many investment advisers promoting today:  “Always stay invested” or “Buy and hold.”  Neither of these equals a strategy of “doing nothing.”

“Always stay invested” offers a strategy of sure impoverishment.  It demands that no matter how good the risk-reward ratio a particular investment offers, no matter how bad the outlook for a stock or commodity or industry or economy, my money has to be invested somewhere.  To that common sense can only reply, ‘Hogwash,” but “common sense” and “investment adviser” don’t necessarily walk together.

The only strategy more certain to impoverish you than “always stay invested” is “buy and hold.”  As of last month, following that strategy since January 2000 has eaten up your capital to the tune of 24% in the Dow, 39% in the S&P 500, 63% in the Nasdaq Comp, and 71% in the Nasdaq 100. “Buy and fold’ they ought to call it.

ROTTEN OPPORTUNITIES

Lately the stock market gave us another example of a rotten opportunity.  Because stocks jumped after Gulf War I, Wall Street’s stock touts (a.k.a. “analysts”) expected stocks to repeat that performance after Gulf War II.  Obligingly, they jumped into stocks with all their clients’ money.  Had you bought the Dow at the 7,524.06 low on March 11, 2003 by today (with the Dow at about 8,500) you would have gained about 13%

But think about buying stocks on March 11.  You were investing against the primary downtrend (hoping stocks would swim upstream faster than the current was carrying them downstream) with the technical possibility of a drop to 6,500 or lower, a 15% loss. 

To my mind, a roughly equal chance of losing or gaining 15% doth not an attractive investment make.  This is drawing to an inside straight.  Rather than take that risk, I would far prefer to do nothing, and sit still collecting a measly 3% in a money market fund (not to mention holding silver or gold in a primary uptrend).

SWEET OPPORTUNITIES

Compare the risk of the stock investment I’ve described above to what I recommended in my last Special Alert (Nudge).  Silver and gold appeared to have completed their reaction down from gold’s $380 high.  Spot prices stood at $329.80 and $4.40.  I recommended buying Dec. 2004 silver call options with a $6.00 strike price.  They cost $600 – 650, depending on how fast your acted on the recommendation.

The option is good until November 2004, 22 months away (at the time).  The option’s strike price is $6.00, so the option doesn’t break ‘in the money” until silver reaches $6.00, although it starts rising long, long before that.  Past $6.00 it participates dollar for dollar with any rise in silver’s price.  At $7.00 silver, below the 1998 $7.80 high, the option would be worth $5,000; at $8.00 silver, $10,000.  So we are risking $650 for a potential reward of $5,000, roughly a 750% reward/risk ratio. 

And we are giving the market plenty of time – 22 months – to make us right.

And we are riding with the primary trend, not against it.

PATIENT WAITING

But great opportunities don’t come along every day, so we have to be willing to do nothing, biding our time  while we wait for them to appear.  Likewise, once we have made an investment we have to wait patiently for it to work.  Markets move up in three rises or degrees.  In the first phase --  before the public grasps the opportunity -- a bull market gains at a very slow pace.  In the second the ascending angle increases as the public hops on.  Finally, in the last stage, the market rises straight up because “everybody” knows it will keep going up forever.  To reap the biggest harvest, you have to fade the public.  When they sell, you buy; when they buy,  you sell.

If you have already bought your gold and silver position, doing nothing now means waiting patiently for the bull market to unfold.  By now you ought also to have positioned yourself on the right side of the US dollar (short with the primary downtrend) and stocks (short with the primary downtrend).  (If you still own stocks, even in an IRA, you are drawing to an inside straight.  You have stacked all the cards against yourself.)  Having made your investment, now you can only wait patiently, watching the signs to make sure the primary trend hasn’t changed.

It’s beginning to turn out that “doing nothing” isn’t really as unoccupied as onlookers might assume.

ANOTHER KIND OF DOING NOTHING

If you’ve ever met or spoken with my wife, you know she is a wonderful person.  However, she has a small blind spot where I am concerned.  Whenever she walks into a room where I am huddled over a book reading, she shortly will say, “Since you’re not doing anything . . .” and assign me some errand.

I will grant that while reading I am not making much noise, nor are my arms and legs moving violently.  But I dispute that mere lack of physical motion correctly leads to the inference that I am “doing nothing.”  To Susan it appears that I am not working, but actually my mind is running in high gear, working at its highest speed, even if I’m reading nothing but P.J. O’Rourke.  In fact, strong doses of P.J. O’Rourke tend to make me work much better, even though they have little or nothing to do with the gold and silver markets.

To Susan, my reading is ‘doing nothing.”  Maybe your fishing or napping looks that way to your wife.  Or maybe her shopping or folding clothes looks that way to you.  But you see, “doing nothing’ accomplishes quite a bit, because it’s exactly when we pick up and ponder new ideas and apply old ones to new places. 

It only looks like we’re doing nothing.

THE LAST KIND OF DOING NOTHING

There’s one last kind of doing nothing that differs from the others.  Times come when doing anything is positively wrong, positively wasteful, positively stupid, and positively premature.  At those times you can only do your nearest duties, building the future and waiting for history to unfold.  There’s no help for it.  Things must run their course to a bitter end we can do nothing to avert.

You can imagine that I fret quite a bit about the world I see around me.  Corruption in the church leaves me furious.  The tyranny building in civil government alarms and enrages me.  Most of all I abhor the lethargy and laziness and inability to think on the part of those whose job it is to keep those institutions honest – the people of this country.

I get anxious.  I fret and chafe.  I want to do something.

To be honest, I’d be more worried about myself if I could view that rottenness without resenting it.  The man who can look at it without revulsion is a moral monster.  At the same time, God has placed limits on my jurisdiction.  Some things are simply beyond my power to fix.

That’s when you have to turn things around and look at them another way. 

“When I thought to know this, it was too painful for me:  until I went into the sanctuary of God; then understood I their end.  Surely thou didst set them in slippery places.” [2]

From this angle you don’t see how fast the world is going to hell in a handbasket, but how surely God is working out all his holy will.  And he works it out in all the ways that the mighty despise, not in grand crusades and world-saving blows, but in the love of a husband for his wife, in raising children, in doggedly fulfilling our duty day by day, in patiently building the kingdom of Christ by lifting one brick at a time, purposefully putting it into place, and then scraping out the excess of mortar until the joint is perfect – in all the ways that the too-busy world calls “doing nothing.”

If you are unwilling to do this first, then all your mighty world-saving, all your crusades amount to so much bunk and posturing.  If you are unaware that sometimes you can do this only, then you will waste your efforts.

So as a faithful friend of mine reminds me when our present situation’s irretrievability stirs me up too much, I ought to forget all that and go do nothing with my wife.  At times, it is positively better to do nothing than something.  It is positively better to hug your wife, to go for a walk with her, to play with your children, to read or fish or nap than to ride off in the sunset to crusade against the world’s incurable folly.

Because however much the world believes you are doing nothing, however much you might think you’re doing nothing, you’re actually doing the most important thing in the world.

-- F. Sanders

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