The Ignorant Investor

Investing over the long term is a slow process. A matter of averages. Whatever big score I make today will probably be tempered tomorrow by an unforseen loss. The temptation is, however, to always be active. To keep looking for opportunities and to keep shifting money around in search of returns.

But there's a thing called friction whenever you move down here on earth. In heaven they strum harps and float effortless in the clouds. Investing up there must be easy. No commissions, no bid/ask spread. Instant trades. Zip in, zip out. But it's not like that down here. Trading stocks costs money for us, and that cost has to be counted against returns from new investments. On average, it takes a much bigger bite that people think.

So sometimes doing nothing is the best policy. A big-cap stock that is underperforming today may outperform tomorrow. And the stock that is the subject of whispers and the big rage has a tendency to run out of steam as the years go buy. Over 10, 15, 20 years- I suspect most of the blue chips end up in the same place. With the small cap stocks, you buy ten in 2005, maybe by 2015 four or five are in the penny stock class, the others have seen big gains. What's the result when you average the two groups- probably in nearly the same range as the big caps.

Or maybe not. Maybe I'm just misinterpreting my own laziness as a viable investment plan.