Inaction is a choice in the stock market. And a very hard choice at that. Every day Mr. Market is yelling prices at you on thousands of different goods. On some days, certain goods seem more appealing to you than other goods. There is a constant temptation to change one’s portfolio to include the next best idea. A money managers is subject to a behavioral bias to take action to justify one’s job. But a number of studies show that managers with lower portfolio turnover, tend to perform better than managers with high turnover.
There are some very successful and very rich traders in the world that trade frequently and/or make large speculations based on movements in stocks, currencies, commodities, etc. These traders are lauded in the media because speculation is exciting, and when they get something right books are written about their wins. As a result, a lot of people think they can do the same thing and start making frequent trades to try to emulate these successful traders. There are two issues with this: (i) for every famous trader there are thousands who did not hit it big and likely lost everything and (ii) most successful traders are a lot more than just traders. They understand the fundamentals of the assets in which they are investing and understand the movements of the market better than almost anyone. They aren’t just “lucky traders”.
At Fortis, we know that we are not very good short-term traders. As a result, we simply leave the traders to play their game and we play ours. We look for businesses we understand, with favorable long-term prospects, supported by solid management teams and at a price that allows for some mistakes in our analysis of either the business or the management team. We will not be on Bloomberg or CNBC discussing some short-term trade in which we made billions of dollars overnight, but that's ok with us.