Don't just do something, sit there

How your bias to action can destroy your returns

How did you react to the “Liberation Day” tariff announcement?

Most people will say they sat tight, but the response of stock indices in the days following the April 2 announcement tells a different story. The selloff ranks right up there with some of the worst ever. Lots of people panicked and sold.

In light of today’s announced “deal” with China and the associated market reaction, this might be the most unnecessary market crash of all time.

I wrote Low Risk Rules primarily to the entrepreneur investing liquid assets. And one of the main themes of the book was the different way entrepreneurs and investors think about risk.

If you’re running a business, the appropriate response to the tariff announcement was to react. Make contingency plans. Update budgets. Evaluate alternate supply chains. Begin work to understand the cost of onshoring production. If you haven’t been working overtime, you are risking your entire business if the worst comes to pass.

If, as an investor, you reacted to the tariffs, you sold low. The proper reaction was to do nothing.

Now think about how different those two reactions are. Think about how damaging it would have been if the entrepreneur used their business instincts to make portfolio decisions.

Below is an excerpt from Low Risk Rules that explains this concept in more detail.

Control your bias to action

Liquidity poses a variety of challenges for every investor. But the entrepreneur in particular has been conditioned in such a way that they are at the most risk.

In the early years of growing your business, you had to push forward despite what may have seemed like insurmountable odds working against you.

You had to seek out opportunities for growth. Almost as many experiments as you started were quickly jettisoned if they failed to show early promise.

There was no time for you to rest on your laurels. You can’t put your rent payments on pause, and you need to make the next payroll in another two weeks. And again two weeks after that.

Success in business doesn’t come from dreaming. It doesn’t come from planning. It doesn’t come from obsessing. It comes from executing.

The competition is an ever-present threat, looking to steal your market share. And it only gets more intense as time passes, because the more successful you are, the more they target you.

The life of a business is one of constant evolution, challenge, and change. You can’t put it on pause, and you soon learn that inactivity will be penalized.

The famous Facebook corporate motto “Move Fast and Break Things” is a great philosophy if your goal is to foster innovation.

But it is the antithesis to intelligent investing.

Investors need to be patient. They have the luxury of waiting for the right opportunity, and then waiting for an investment thesis to play out. Overactivity in the form of excessive trading and chasing returns can be deadly.

The business world rewards pushing boundaries and experimentation, but investing often punishes it. The riskiest investments are often the most volatile, and so losses can be experienced swiftly. It’s much harder to manage downside in a volatile investment than it is in your own business, because so much is out of your control, and emotions often get the best of you.

Warren Buffett has gone so far as to use the example of a punch card with only twenty investments you can make over your lifetime. Think very hard before committing your capital, because you are punching your card. Although your investments might be liquid, you want to treat them as if they were illiquid.

You have acclimated to the constant stress of life as an entrepreneur, and you have a hard time imagining life any other way. As an entrepreneur you often find that you need an outlet for this nervous energy—particularly after a business sale—because it has become a permanent part of your mindset.

You’re a natural-born bull, which is awesome. But while you once roamed free, you now risk wreaking havoc in your very own china shop.

So here’s my suggestion: if you find yourself with enough time to pay close attention to your portfolio, take up a challenging hobby that will stretch you—say, golf, painting, or restoring classic cars. Anything. Just don’t turn your investment portfolio into that outlet.

One of the keys to success in investing is to minimize the number of decisions you have to make. The more decisions you make, the greater the chance you will make a mistake. And those mistakes can be costly.

Worse, overtrading is the enemy of compounding investment returns. You will buy and sell at the wrong time—there’s simply no way around it. Even the greatest investors in the world do it.

Private investor Anthony Deden of Edelweiss Holdings describes it this way: “The more frequently you look at something, the more frequently you second guess why you own it, and what else you could own instead.”

The more decisions we make, the greater the chance of making a mistake.

This is compounded because we make poor decisions under stress. Research shows that elevated cortisol levels (an indication of biological stress) are associated with higher portfolio turnover. The same elevated levels are associated with judgment errors and stress in social settings.

Essentially, the times when you might feel the need to buy and sell most are the precise times you shouldn’t be doing those things.

It goes against everything you have learned during your time as an entrepreneur, but the fact is that in times of stress (like a market crash), the counterintuitive truth is that the best thing you can possibly do is nothing.

I have never once seen good come from a client obsessively tracking their portfolio, or suggesting stocks to buy or sell. Most investment managers will tell you that clients who try to influence portfolio decisions very reliably detract value. They want to sell when the news is at its bleakest. They want to buy into a sector when the financial news is broadcasting how much money everyone has made in it. Keep this rule in mind: by the time the news hits the front page, it’s often too late to profit from it.

Overcoming your bias to action is perhaps the entrepreneur’s biggest challenge when making decisions around their liquid wealth.

Gain mastery over liquidity. It can make it far too easy for you to do the wrong thing at exactly the wrong time.