Beware the Boredom of Bull Market

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I received an email recently where one reader asked – “What you say about long-term investing in the stock market is all good. But doesn’t it get boring after a time? I mean, first the process of reading annual reports to find good businesses, and then if you find some, holding on to them for the long run doing nothing. How does one maintain interest in this thing? How does one make this process and journey exciting?”

I thought these were good questions. In fact, questions like these used to bother me when I started out on my journey of reading annual reports, analyzing financial statements, and practicing long term investing more than a decade back.

In fact, I was talking to an investor friend recently, who confessed of boredom because he was not able to find stocks worth buying in this rising market. “Even if you are a long-term investor, what do you do but feel bored when you don’t find anything worth buying because everything seems to be so inflated?” he questioned.

“I agree,” I said.

Oh Boredom!
“Boredom” first became a word in 1852, when Charles Dickens published Bleak House, where he wrote…

I am bored to death with it. Bored to death with this place, bored to death with my life, bored to death with myself.

As an emotional state, however, boredom dates back a lot further. Roman philosopher Seneca described boredom as a kind of nausea. Danish philosopher Søren Kierkegaard wrote this in his book Either/Or: A Fragment of Life…

Adam was bored because he was alone; therefore Eve was created. Since that moment, boredom entered the world and grew in quantity in exact proportion to the growth of population. Adam was bored alone; then Adam and Eve were bored together; then Adam and Eve and Cain and Abel were bored en famille. After that, the population of the world increased and the nations were bored en masse.

Wikipedia defines the word ‘boredom’ as…

…an emotional or psychological state experienced when an individual is left without anything in particular to do, is not interested in his or her surroundings, or feels that a day or period is dull or tedious.

For most people, boredom is a passing, nearly trivial feeling that lifts as the moment passes, a task is completed, or a lecture (like my workshop) ends.

But as per science, boredom has a darker side. Easily bored people are at higher risk for depression, anxiety, drug addiction, alcoholism, compulsive gambling, eating disorders, hostility, anger, poor social skills, bad grades and low work performance.

When it comes to stock market investing, boredom can be devastating, especially for people who get easily bored.

Bertrand Russell wrote in his book, The Conquest of Happiness…

We are less bored than our ancestors were, but we are more afraid of boredom. We have come to know, or rather to believe, that boredom is not part of the natural lot of man, but can be avoided by a sufficiently vigorous pursuit of excitement.

Talking of removing boredom through pursuit of excitement, look no further than the widespread consumerism that has engulfed the modern society. One reason why so many people buy so many things they don’t need is because such buying helps them kill boredom (or so they think).

Shopping, as I understand from my wife, is not just an act of spending money to buy things she needs, but also a therapy against boredom.

As I also understand from a few of my friends working in the stock broking industry, trading in and out of the stock market is not just a show of overconfidence from the trader. Just the excitement of constant activity helps in killing boredom that the stock market can create from time to time.

A Bored Investor is A Dangerous Thing
Jason Zweig, in an article he wrote in late 2016, mentioned how a bored investor is a dangerous thing (often to himself). He wrote…

A bored investor is probably more likely to succumb to the whims of other bored investors moving in a herd.

All of this is true for professional as well as individual investors. In his classic book Where Are the Customers’ Yachts?, published in 1940, Fred Schwed wrote: “Your average Wall Streeter, faced with nothing profitable to do, does nothing for only a brief time. Then, suddenly and hysterically, he does something which turns out to be extremely unprofitable. He is not a lazy man.”

So, whether you invest for yourself or work with a financial adviser, it’s important to resist the pull of action for action’s sake.

Jason also quoted Charles Ellis, whom he calls Wall Street’s wisest man, as saying…

Investing is a continuous process too. It isn’t supposed to be interesting…If you go to the stock market because you want excitement, then sooner or later you will lose.

A smart value investor I know of, Ravi Varghese, wrote this in a post –

It’s exciting when assets go up or down by a lot. Generally, they don’t. It’s boring to watch things that don’t do much in a hurry. And it’s boring to wait for the market to validate your assessment of fundamental value.

It’s boring to sift through financial statements or filings and then discover a company is fairly valued. It’s boring to wait for a better opportunity to purchase an asset. It’s boring to own a company that has excellent prospects but that no-one has ever heard of (or is likely to ever hear of). It’s boring to remain invested in a company that is quietly compounding its value (and whose business you understand well), when new opportunities appear more alluring. It’s boring to invest the same way you always have, when the world around is full of “sophisticated” investors raising a lot of money for complex strategies.

Managers, M&As, and Pursuit of Excitement
When I was working on my job as an analyst, and we were in the heydays of 2006-2007, I recollect a meeting with the CFO of a mid-size IT company.

“You have done well to grow your revenue and profits at 20%+ rate over the past five years,” I told him. “But do you think you can sustain this kind of growth for another five to ten years?”

“Oh, why not?” he replied with complete confidence. “In fact, 20% is not what excites us, and that’s why we are pursuing a few acquisitions.”

I did not give much heed to his “pursuit of excitement” then. After all, we were in a bull market, and this company was growing rapidly through acquisitions.

But as I reconsider that situation in hindsight, not just this company, I saw most acquisitions that most companies make are not because of the “synergies” that CEOs and their cohorts talk about, but out of the need of action and to avoid the boredom that managing a business may bring about.

Bertrand Russell wrote in his book…

A generation that cannot endure boredom will be a generation of little men…of men in whom every vital impulse slowly withers, as though they were cut flowers in a vase.

This thought is so important for investors to understand and always remember.

Most sensible investing is long term investing. And most long term investing is boring, especially when stocks are not doing much for a long period of time (like it happened with my investment in Swaraj Engines; I sold it because I got bored of it!).

But acting out of boredom is never a good strategy as far as investing your hard-earned money is concerned. To get over your boredom, you may pursue excitement somewhere else – like going for a holiday with family, or watching movies you’ve missed out on, or taking up a sport. But pursuing excitement in the stock market is often dangerous.

Many have pursued wars to kill boredom. Many have done it with quarrels with neighbours. And many have invented stuff because they had “nothing else to do.”

If you don’t want to indulge into any of these things to kill your own boredom when you have nothing to do in the stock market, here is a better suggestion – send a text message to a random number on your phone saying, “I hid the body. Now what?” And then, let the excitement begin. 😉

But please, please, don’t try to let your boredom get to your head, and lead you to act in haste just because you want to bring back excitement into your life.

Warren Buffett wrote this in his 1990 letter to shareholders…

Lethargy bordering on sloth remains the cornerstone of our investment style.

If you practice this – lethargy, slothfulness – and then don’t let boredom get to you in your investing, there is a high probability that you would do well over the long run.

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That’s about it from me for today.

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Stay safe.

Regards,
Vishal