On spinning one’s wheels

I talked to a friend of mine this past week who’s nailed just about all of the hottest trades and the best-performing stocks of the year so far. But his returns are far below what you would think they’d be given the names he’s involved with (LNKD, FB, TSLA, GMCR, Z, CELG etc). He thinks the main reason for the drag on his performance is because of the mind-boggling amounts of entries and exits. His resolution for 2014 is to react to less inbound information and to be a bit more tolerant of short-term fluctuations.

After chatting, I was reminded of this Warren Buffett gem from the 2005 Berkshire Hathaway Letter to Shareholders:

“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

No doubt about it.

It’s rare to encounter an investment environment in which more is more and an increase in decision-making is of any benefit to the decider.

Don’t let the sound of your own wheels drive you crazy.