Investing: The waiting game

Even the “savviest investors” can’t help but worry about the jittery markets and uncertain economy, said Geraldine Fabrikant in The New York Times. But the manager behind Yale University’s $22 billion endowment has a simple piece of advice: Don’t do anything “fancy.” True, David F. Swensen uses a “complex strategy” and “esoteric vehicles” to boost returns for Yale. But for individual investors, he says, simplicity is the key. “Big investors have access to fund managers and arcane strategies that are beyond the reach of most people.” Everyday investors must maintain a diversified portfolio, keep a close eye on investment fees, and check periodically to be sure that you aren’t overinvested in any asset. If the markets zig or zag, sit tight and ignore it.

Sitting tight is easier said than done, said John Authers in the Financial Times. “Faced with the reality of losing money, our instinct is to do something—anything—to avert it.” This is partly due to human nature, but there’s also a powerful cultural bias against inactivity. In baseball, for instance, “batters often prefer to go down swinging, even when the percentages suggest their best bet is to leave the bat on their shoulders and see if they can force the pitcher into giving them a walk.” But there are plenty of good reasons to just do nothing. “Churning” investments in quest of a fleeting edge means racking up transaction costs that can fritter away your capital. By contrast, “leaving things as is can be very cheap.” Look past the short-term behavior of the markets, and you’ll eventually be rewarded. “In the very long term, equities’ performance is tied to economies, and economies grow.”

Many investors try to play defense against slowing markets by cherry-picking particular sectors of the economy, said Ben Steverman in BusinessWeek. “In theory, sectors including health care or defense will be relatively unfazed by a recession,” and may well hold up better than other securities in a down market. “But if the U.S. economy bounces back at midyear, which many expect,” an investor without a broad portfolio will see fewer of the benefits. Fleeing to apparently safe sectors right now might help you sleep at night. But it’ll “probably hurt your returns.” Playing defense oftentimes can be a worse strategy than sitting on the sidelines.

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