Do less, profit more

In most jobs, more effort means better results. In investing it is often the opposite: the more you trade, the worse you tend to do.

Why activity costs

• Fees and spreads — every trade has a cost. Small costs compound just like returns.
• Taxes — selling a winner often triggers tax that would otherwise keep compounding.
• Mistakes — every decision is a chance to act on emotion: selling in fear, buying in euphoria.

A study of tens of thousands of US brokerage accounts (Barber and Odean, 2000) found that the households that traded most earned clearly less than those that traded least — mainly because of costs and poorly timed trades.

Doing nothing is a decision

Most of the time, the right action is none. Good opportunities are rare; the market does not owe you a trade every week. A systematic process with monthly checks makes inactivity the default: you look once a month, act only when a rule changes, and otherwise leave the portfolio alone.

Related: common investing mistakes

By Dr. Harry Hamann · 4 min read