Rule du Jour: Rule #21 Sit On Your Hands (Patreon)

The "Sit on Your Hands" Investing Rule

The "Sit on Your Hands" investing rule is a powerful concept that emphasizes the importance of patience and restraint in the face of market uncertainty and emotional turmoil. This strategy, which aligns with Howard Marks' long-term investing philosophy, can be particularly valuable during periods of heightened market volatility or when faced with significant geopolitical or political events.

Between us the last 2 months were hell as I know my bags were heavily exposed to the election outcome. You could probably tell from my demeanor.

Key Principles

• Resist the urge to act: When markets are turbulent or uncertain, the natural inclination is often to "do something." However, this rule encourages investors to resist that urge and maintain their current positions.

• Trust your research: If you've done thorough analysis and have a high degree of confidence in the outcome of the election - 80% plus per my models - so I stuck with my convictions but it was painful as I was not completely sure.

• Avoid emotional decision-making: Market volatility and major events can trigger strong emotions. This rule helps investors avoid making rash decisions based on fear or anxiety. I managed to turn off this emotion. But I admit, I was TERRIFIED.

• Focus on the long-term: Instead of reacting to short-term market movements or news events, maintain focus on your long-term investment goals and strategy. I know BTC would be OK, TSLA not so much, SOL either.

Implementation

To effectively apply the "Sit on Your Hands" rule:

• Set a confidence threshold: Establish a minimum level of certainty (e.g., 80% chance of a favorable outcome) before making any significant changes to your portfolio.

• My Portfolio: Considering the tax cost of selling - while on substantial capital gains, this helped me not sell out of any positions. Also aware that hedging is costly.

• Trust your Gut! Trust the Data. Trust the models. Not the Media.

Benefits

• Reduced transaction costs: By trading less frequently, you can minimize friction.

• Potentially higher returns: As Howard Marks suggests, sometimes doing nothing can lead to better investment outcomes over the long term

• Lower stress: Accepting that market uncertainty is normal can lead to a more relaxed approach to investing. It is what it is as some say.

• Tax efficiency: Holding investments for longer periods can lead to more favorable tax treatment of capital gains. Also let your winners run!

Remember, the "Sit on Your Hands" rule doesn't mean never making changes to your portfolio. Instead, it encourages thoughtful, deliberate decision-making based on thorough analysis rather than emotional reactions to short-term market movements or news events