HUMMONEY - The Value of Doing Nothing (Perspective)

- by Greg Lewin

Each week I struggle to come up with genuinely useful ideas to communicate about investing. The difficult part is my intention of seeking out durable truths, not disposable truths. As a practicing hedge fund manager and as a writer for this website I read endless articles looking for insight which can then be communicated in a clear and simple manner.

This week provided no rest from the weary review of:

• Record unemployment
• Relentless build up of debt and obligation at the government, consumer, and  pension levels
• Deteriorating economic statistics
• Chinese economic/political policy
• Stock market volatility
• Endless meaningless commentary

But one fact which has been gnawing at me for a while resurfaced again in the news this week (most of what you read is recycled constantly because very little news of substance takes place): The approximately $2 trillion of cash held by non-financial corporations. The overwhelming majority of this is held by the 50 largest of them. Now what can we learn from this?

First of all, this cash balance has been around for a while because these sums don’t accumulate overnight and we know the returns on cash are abysmal. Second, we know everyone on Wall Street has been screaming for them to spend this cash on mergers, acquisitions, stock buybacks, etc. because that’s how Wall Street gets paid. But these 50 guys have so far said no. So what’s the message? Well we should assume that these are relatively smart guys blessed with information and advice beyond our imagination. We can also assume that doing nothing is usually met with loud criticism by owners, directors, and shareholders looking to make money. Yet, they refuse to relent. Is doing nothing when the world is way too confusing and possibly frightening doing something? My answer is yes.

We are all trying to maximize and optimize everything we do. It creates a burden of expectations which pressures us into constant decision making. Remember the core principal to winning in the stock market is not losing. We don’t avoid risk but we do encourage responsible risk taking and maybe when we look to the actions of some of our best and brightest we see a message that is loud and clear: risk taking is not advised at this time. So maybe we have to wait and suffer the pain of low expectations and the true fear of missing out if markets rise. That is never easy, but if we look to the actions of the best informed, it may be very wise.  I am reminded of a wonderful quote by the chess and martial arts champion Josh Waitzkin, “…not only do we have to be good at waiting, we have to love it. Because waiting is not waiting, it is life.”    

- The views expressed here are of the author, HUMMoney contributor Greg Lewin; currently a General Partner at TLF Capital, an investment management firm. During the past 26 years he has been a senior money manager or partner in Wall Street firms including Neuberger Berman, Charter Oak Partners and Sailfish Capital.