The Power of Doing Nothing
In this letter, we'll discuss the importance of doing nothing. Yes, you read that right. I want you to learn how not to buy stocks. How not to trade commodities... how not to sell options or buy corporate bonds.
I'm going to show you the most important secret of all is learning to do nothing. In my Friday Digest, I do my best to tell you the things I'd want to know if our roles were reversed. Many of the things I've written to you about over the years are bad for my business. And nothing is worse for my business than advising you to do nothing...
That's why no one else in finance is going to tell you, the client, to do nothing. It's not in their interest for you to do nothing. We – the professional financial community – need you to do something. Anything. We need you to take action so we can sell you information and services. You don't need a broker unless you're going to make a trade. You don't need a newsletter to tell you to do nothing.
Now, let me explain why doing nothing is so important. Just look at the stock market chart below...
At some point each year, the stock market suddenly remembers that the world's financial system suffers from serious problems – namely, that those who back the system are mostly broke.
In 2010, the break came from April through early August. It featured a massive run into U.S. Treasury bonds and collapsing stock prices. The downtrends continued until Ben Bernanke, the Federal Reserve chairman, promised to print another trillion dollars in the second week of August. At that moment, the prevailing downward trends completely reversed. Stocks went up. Commodities went up. And interest rates went up.
In 2011, the break came in August. Everything plummeted as the world suddenly realized that Europe's banks didn't have any money left. Once again, U.S. Treasury bonds rallied (interest rates fell), stocks plummeted across the board, commodities did a swan dive... and European bank stocks were beaten like rented mules. This time, the European money printers came to the rescue. They promised to print in October (and actually began printing in December). The result was a huge rally – across the board. It didn't matter what you bought in December 2011. Everything soared.
Hopefully by now, you see the pattern. The world's monetary authorities are simply exchanging the value we hold in our currency for value in financial assets (stocks and bonds) and commodities. It's a game that destroys the purchasing power of the working class' wages, while enriching the speculators and investors who know how to game the system.
How do you game the system? Learn to do nothing. What I mean is, the game has become so rigged that various measures of the market's variability have completely collapsed. All stocks, all bonds, all prices... everything... are moving in lockstep. That's because all these prices are set in the paper that's being printed in massive quantities. Compared to the monetary forces at play, the things that normally drive stock prices – like interest rates and earnings – make almost no difference.
Your efforts to overcome this volatility by doing something – by hedging, by trading, by buying the "right" stock – are all likely to fail. No, that's not a guarantee. And yes, you can do a lot of powerful things to generate income that will help you weather these storms. But the most powerful thing you can do is nothing.
You see, while prices are moving together, value continues to be widely variable. During a crisis, there's no difference between the very best companies and the very worst. They all sell off together. Therein lies a tremendous opportunity – if you've learned to do nothing.
Here's all you have to do: Pick three or four stocks you want to own. Look back and think of the companies you should have bought in previous years. Make sure they're the highest-quality names you can find. Set aside 5% of your net worth in cash for each of these names this week. Just sit on it. Don't worry about the yield you're losing. Don't trade the funds. Do nothing.
It's an extremely powerful feeling. You're going to take advantage of the market, instead of being its victim. That's the secret of doing nothing.
At some point over the next six months, a full-fledged crisis will take hold. There's been a crisis every year since 2008. There will be another one this year. And it will follow a predictable script… The monetary authorities will come out and promise to print more money, buy more assets, and prop up more banks and governments. Financial assets and commodities – all of them – will soar as a result. But this time, instead of selling during the panic, you'll be buying.
How will you know when it's time to buy? Here are a few simple guidelines...
Imagine if you only bought stocks when: 1) The Volatility Index (VIX) – the so-called "fear gauge," which measures put premiums – was over 30... 2) Stocks had fallen by at least 15% on the S&P 500 and/or 20% on the Nasdaq... 3) A friend or a relative calls in a panic and asks what to do about his investments... 4) You don't want to pick up the newspaper or turn on CNBC because you know the news is going to be terrible.
If you're prepared... you won't be worried. If you've picked the stocks you're going to buy ahead of time, you won't doubt yourself. You won't be acting out of fear or greed or panic. You have a plan. You've learned to do nothing... until it's time to buy. You'll know when it's time. It'll be obvious.
If you can learn to do nothing... the market's volatility and the giant rigged game we call the world's monetary system ceases to be a problem. It becomes a giant opportunity. Learning to do nothing takes all the power back from the market and gives it to you.
As with all the new strategies I've introduced you to over the last several years, I'd encourage you to start small…
I know that if you try things on a small scale – like shorting one share of stock, buying a single bond, or selling one put contract – you can mitigate almost all the downside and nearly all the fear. It's scary doing things for the first time with your own money.
The way to overcome this paralyzing fear... and the only way to learn to become a better investor... is to start small and get some experience. Learning to do nothing is harder than it looks. And far more powerful than you're likely to realize until you start doing it. You'll be constantly tempted to do something with the cash you're sitting on. So start small. Then... as the strategy works... you'll want to do it more and with more of your assets.
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