I've spent the last two weeks in Internet purgatory -- not necessarily a place where connectivity was unavailable, but certainly where it was both slow and expensive to use. Knowing this in advance, I determined that I would disconnect and not check up on the world for two full weeks.
It means I missed out on a couple of things: Ronald Reagan's funeral for one, Ray Charles' for another. It also meant that for a period of two weeks, I had exactly zero idea what was going on in the world of finance, and I had no additional information on how the markets -- or more viscerally, my stocks -- had performed.
This was as much of a test of myself as anything. For as much as I am a long-term investor, I am also a habitual "checker." What's going on? What happened since then? Up or down? Yadda, yadda, yadda. Never mind that my propensity to act on this "information" is generally zero. I still wanted to know. I checked the box scores. A lot.
A heartwarming story of nothing much
What that amounts to, in effect, is an enormous waste of time. I own Berkshire Hathaway
With a company the size and structure of a Berkshire Hathaway, the answer is that it doesn't do much good at all. But is Berkshire Hathaway really so different than the majority of most companies? Is it an exception, or just an extreme example of the benefits of benign neglect for an investor? I had two weeks of self-imposed exile to find out.
The end result was this: I own companies that run the gamut from speculative natural-gas exploration to a debt-laden restaurant chain to Annaly Mortgage
So, the question is, which is more harmful -- spending every waking moment of every single day carping on message boards about whether or not the "market makers are painting the tape," or letting your portfolio go on autopilot for a while? I suggest that the latter is much healthier for two reasons: First, you're going to have more time to spend on things that do matter, and second, you're much less likely to react to something that is ultimately unimportant. While the world seemed to be all hot and bothered about whether Dell
Benign neglect, not buy and forget
That I was even marginally comfortable taking a few weeks without so much as checking up on the companies I own was in fact a risk, but a reasonable one. For many, this would not be the case. This has nothing to do with the mirage of control that many investors want to grant themselves when it comes to their portfolios -- it is extraordinarily difficult to predict events that can happen nearly at random. I did take some risk. I was limiting my ability to react to truly bad (or good) occurrences. In general, though, these things don't happen often enough to any individual portfolio to justify slavish devotion to continual price updating.
Still, walking away was sort of tough, for one reason -- what Washington State University Professor Dr. John Nofsinger calls "overconfidence" in his excellent book Investment Madness. Investors have this delusion that by closely watching events with their companies or the markets that they have some semblance of deep knowledge about them, and even think that they have some control over them. Nofsinger even found that there is a high correlation between the amount of messages on Internet discussion boards one day and trading volume the next day.
But a read through of most Internet board posts will show that there is a near total absence of insight or knowledge imparted in the overwhelming majority of them. What they do impart is something else: excitement. Excitement is a great reason to sidle up to a table in Vegas: That's what you're there for. It's not a great assistant to the investing promised land, though. Excitement, the illusion of control, the need for action -- these aren't ingredients for investment success -- they're key to the underperformance that comes hand in hand with hypertrading.
There was a simple reason, though, that I wasn't terribly bothered with the thought of cutting the tether on my portfolio for a few weeks. It was this: I've analyzed these companies so much and for so long that I could take with me a reasonable expectation of what I'd find when I returned. The day I bought each company I owned became the day that I committed to really study, and I have done just that. Could Procter & Gamble
As best I can, I know the companies that I own. I also recognized that the amount of time I spent on things that didn't increase my understanding of these or any other possible investments was higher than it ought to have been. As such, though I may have some catching up on any major stories over the last two weeks, in the scope of things, I haven't lost anything at all. If anything, by not spending time worrying about stuff that didn't really matter, I gained a great deal more.