On The Art of Doing Nothing; The Sunshine Vitamin; A Short Film!

From: aditya rana
Date: Sat, Oct 29, 2016 at 1:22 PM
Subject: On The Art of Doing Nothing; The Sunshine Vitamin; A Short Film!
To:

Hi!,

“All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” – Blaise Pascal. This week’s letter looks at perhaps one of the most difficult principles to follow as an investor – the art of doing nothing. Financial advisor and prolific blogger Ben Carlson wrote an interesting column recently on the importance of this rather rare quality amongst investors. To summarise:

-There is a plethora of mutual funds, hedge funds and ETFs (numbering 50% more than the underlying stocks and bonds) to tempt investors into doing something, despite proven benefits arising from doing nothing.

-The fund managers for the $35 billion Nevada state pension fund (one of the top performing pension funds over the past 1, 3, 5, 10 and 20 years) recently gave an interview on their investment strategy:

-They keep it simple with a small staff and small research budget. Their investments are all in low-cost fuds that mimic indexes and typically may make only one change to the portfolio a year.

-They say “doing nothing is harder than it seems” due to the restraint required to practice inaction. They spend a lot of time researching strategies that they ultimately don’t do.

-Most pension funds could significantly improve their performance if they deploy a similar low activity (versus high activity) approach. This would involve developing an asset allocation strategy and making some changes to it over time – but avoiding the temptation to do something for the sake of making a decision.

-Investors crave for the dopamine hit arising from taking a gamble which pays off and have a real difficult time sitting on their hands doing nothing, by being patient and acknowledging that they don’t know what will happened next.

-The financial journalist Jason Zweig details a study in his book “Money & Your Brain” which illustrates the tendency of humans to recognize patterns where there are none:

“In a typical experiment of this kind, researchers flash two lights, one green and one red, onto a screen. Four out of five times, it’s the green light that flashes; the other 20% of the time, the red light comes on. But the exact sequence is kept random. In guessing which light will flash next, the best strategy is simple to predict green every time, since you stand an 80% chance of being right. And that’s what rats or pigeons generally do when the experiments reward them with a crumb of food or correctly guessing what colour the next flash of light will be.”

-“Humans, however, tend to flunk this kind of experiment. Instead of just picking green all the time and locking in an 80% chance of being right, people will typically pick green four out of five times, quickly getting caught up in the game of trying to call when the next red flash will come up. On average, this misguided confidence leads people to pick the next flash accurately on only 68% of their tries. Stranger still, humans will persist in this behaviour even when the researchers tell them explicitly — as you cannot do with a rat or pigeon — that the flashing light is random. And, while rodents and birds usually learn quite quickly how to maximize their score, people often perform worse the longer they try to figure it out.”

Another study conducted by psychologists from the University of Virginia and Harvard, asked a number of subject to sit by themselves in room for 6 to 15 minutes at a time, alone with their thoughts. This is what they found:

-“Study participants from a range of ages generally did not enjoy spending even brief periods of time alone in a room with nothing to do but think, ponder or daydream. The participants, by and large, enjoyed much more doing external activities such as listening to music or using a smartphone. Some even preferred to give themselves mild electric shocks than to think.”

-Implications of these human behavioural traits on investing are myriad – for example: professional managers making unnecessary changes to justify their fees, finding comfort in crowds or trying to prove their intelligence or investors guessing where corporate earnings or interest rates are headed next. It is lonely to stick with a more inactive approach.

-This does not mean that you never make changes to your portfolio – just try to avoid doing so during those times when you are likely to make a big mistake. Successful long-term investing is about learning to say no to new investment ideas more often than accepting them.

-Interesting summary of an important mistake which most investors make – trying to be overactive to try and anticipate short term market movements and/or “optimise” portfolio returns. Unfortunately what ends up happening most of the time is paying higher fees and making sub-optimal trading decisions, thereby reducing overall returns. By all means rebalance portfolios (maybe once a year?) , and if you so desire – take a little money off the table in the aftermath of big rallies to free up cash to invest during subsequent downturns. But tryhard to avoid chasing the next big popular investment idea or product being marketed.

On the Sunshine Vitamin:

An important update from Dr. Greger on recent studies which shows that Vitamin D supplements can help is reducing the mortality risk from a variety of cancers.

http://nutritionfacts.org/video/do-vitamin-d-supplements-reduce-the-risk-of-dying-from-cancer/. 10/23/2016.

-The benefits of sunshine in reducing the mortality rate from a variety of cancers like colon and breast cancers has been well established in medical literature. Researchers have observed that high vitamin D levels in the blood stream (which the body creates through sun exposure) were associated with as much as a 47% lower risk of dying from colon cancer, and the risk was lowered even further with higher vitamin D levels. This applied to other cancers as well like breast, ovarian or lymphoma cancers.

-However, these observational studies do not prove a cause and effect relationship due to the possible presence of other factors which may be lowering the cancer risk (exercise, diet etc) or reverse causation – i.e. the cancer itself reduces the levels of Vitamin D in the blood.

-The only way to test this association is to conduct a Randomised Control Trial (RCT) where half the patients are given Vitamin D supplements and half are not. Recently the results of a few small RCTs of 2-7 years duration were released which seem to indicate that even moderate doses of Vitamin D supplements (400-1100 IU per day) led to a 12% lower risk of cancer mortality.

-Researchers suggest that having vitamin D blood levels of at least 75 nmol (as recommended by the Endocrine Society which requires a daily supplement dosage of 1,800 to 4,000 IU per day with no credible evidence of harmful effects) could perhaps help the risk of reducing the risk of cancer mortality.

A Short film:

An ​Egyptian short film (just over 4 minutes), with a simple and yet powerful message, that won an award at the Luxor Film Festival. The film maker Sara Rozit is only 20 years old. Enjoy!​

-Spend a few minutes in silent contemplation or meditation daily, and get some sunshine (or perhaps take vitamin D supplements).

Regards,

Aditya

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