I found the article intriguing because the assumptions made are extremely relevant in the business of value investing too.
In this little post, which I intended to write a long time ago, but succussfully postponed until now, I will argue that a lazy personality is not a hindrance for successfully investing on the stock market. Rather laziness is a virtue that should be welcomed and consciously embraced by investors.
Effort Does Not Equal Result in Investing
At least in the western society the word lazy connotes something bad and evil. Latest it becomes apparent by popular sayings like; "The devil finds work for idle hands" or "Idleness is the beginning of all vice".
At certain professions this might hold true. I am convinced that when a clear positive linear relationship between effort and result in a profession exists, the diligent and hardworking person will certainly prevail. Unfortunately, such a relationship does not exist in stock market investing.
“I choose a lazy person to do a hard job. Because a lazy person will find an easy way to do it.” (Bill Gates )The super smart and restless investors should be shocked and awed. The rather reasonably intelligent and lazy investor, on the other side, should be exhilarated and cheerful. Because a certain extent of a lazy personality is a virtue and the pre- requisite of building up a little fortune in the business of value investing on the long run.
Value Investing And The Virtue of Being Lazy
The abovementioned begs the question what exactly are the personal traits of the lazy investor that gives him an edge over the supersmart and diligent investor.
First of all, a lazy and reasonable intelligent personality has the tendency to avoid cumbersome, tedious and strenuous work. Hence, a lazy investor will always concentrate on investments that are easy to grasp and implement.
If the scrutinized potential investment is too complex to understand, he will be disgusted by all the pending work of digging into endless footnotes of the financial statement and abandon the idea quickly. The lazy investor cannot be bothered with such a company. By moving on to the next investment swiftly, and not listening to other investors praising the company as being the next Apple stock, he might have just skipped one of the Enron's.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” (Warren Buffett)Thus, the lazy investor not only knows Buffet's rule number one, i.e. never lose money, it is rather in his genes.
In addition, the lazy value investor wants to complete the cumbersome and tedious work of the quantitative analysis of a potential security quickly in order to get back to the important aspects of live: namely indulging in idleness. He therefore does not overcomplicate things and is a master in only concentrating on the important aspects of an investment.
While the hyperactive and supersmart investor still is checking out the footnote 114 Z) of an annual report, and brooding over the other numerous aspects of the investment he deems important, the lazy investor already executed on a similar investment.
He is enjoying a very long weekend on the seaside. When coming home hopefully the lazy investor can be positively surprised by the nice price action of the investment, which he did not anticipate at all.
The diligent smart investor is stressed out. He finally figured out that the company is a steal. Unfortunately, the market did as well.
Haste Makes Waste in Investing
Laziness, might the investor be blessed by nature or he acquired the personality by hard mental training, often comes in combination with cognate personality traits that are most important for being a successful value investor.
Lazy personalities tend to have a revulsion to hustle and bustle. They see the daily stock market action as a nuisance that is better ignored. Mr. Market is only of interest to them when he is really manic or seriously depressed.
Lazy investors are rather easy going and patient. They do not feel uncomfortable sitting in a room alone and watching paint dry. A sensation not few value investor have when observing the lackluster performance of their individual holdings over a prolonged period of time.
In this media-drenched, data-rich, channel-surfing, computer-gaming age, we have lost the art of doing nothing, of shutting out the background noise and distractions, of slowing down and simply being alone with our thoughts. (Carl Honoré)For the diligent and energetic investors such a prospect is just disgusting and off-putting. He knows he should be on a diet. But sooner than later he will assemble the menue. Finally he will pull the trigger on the underperformer in order to invest into a holding that is more talked about and more active. Certainly right at the time when the unloved and dumped holding is about to take off.
Not so the lazy investor. Over- eagerness is an abhorrence to him. Selling a good and still reasonably priced stock just implies the tedious activity of having to find a new stock with similar characteristics. Too much work here. The lazy investor is well aware that haste makes waste. He often knows by instinct that the stocks appreciate in price when it is least expected. He cannot do anything about it and he is more than fine with it, because he loves doing nothing.
"It is awfully hard work doing nothing." (Oscar Wilde)Lazy investors are often careful analysts and decision makers in order to minimize future work. Nothing could be worse than having to go over a spreadsheet again because of some stupid carelessness. What a waste of time. Thus, they are often very comfortable Holding on to a position regardless what the stock market or fellow investors have to say about it.
Felxibility: The Little Brother of Laziness
Lazy people often tend to be highly flexible. Although their favorite recreation might be swimming in a lake, they are well aware that it is not a good idea doing so during winter time. Ice skating or reading a good novel is fun too. No problem here.
Even if the lazy investor considers himself being a deep value investor, he does not mind paying up a little for a stock he came across by chance and has very satisfactory other quantitative and qualitative metrics. He is well aware of the fact that it is the valuation of a stock that counts most. Nevertheless is he cognizant of a stock being or not being formally a net-net stock.
All of the biggest technological inventions created by man - the airplane, the automobile, the computer - says little about his intelligence, but speaks volumes about his laziness. (Mark Kennedy)Furthermore, the lazy investor knows about the importance of good capital allocation by the management. Compounding interest for him is the 8th world wonder. It is the effect that gives him the leeway to concentrate on more important things in life, like meeting with friends and family, and enjoying a nice glass of wine on the terrace.
Most importantly, it is the lazy investor that has much more time for concentrating on the essentials when it comes to investments. Seldom is he stressed out and thus, can enter and exit any position in a much more comfortable and relaxed manner.
Last, but not least, a lazy personality can even be too lazy for being lazy. Just make it like Karthick Venkatesh. He has a 29-character password for Facebook and Twitter. "When I have to work, I just log off from these," he says. "So, whenever I feel like taking a break and using Facebook, I am just too lazy to type my password. Eventually, owing to my laziness, I go back to work and have a really productive day."