An “old hand” fund manager once described the essence of his job to me…. “The most important part of my job is helping my team to feel comfortable to do nothing.”
In short, his job boiled down to stopping most of the trades his team wanted to make. In his view, the best approach to investing was to take a long term view and stick to it. His fund managers too often wanted to justify their existence by trading – taking positions on short term news. In this guy’s view, all they ended up doing was swamping the portfolio with transaction costs and too many wrong short term calls.
My colleague was embodying what Nassim Nicholas Taleb, in his book “Antifragile“, calls the “via negativa“. You could call it the “do nothing” heuristic. In a lot of modes of life, if faced with a choice, doing nothing is often a good path to follow.
The latest Freakonomics radio show has brought all this to mind. The most recent episode outlines a study that asked the question: What happens to heart patients when cardiologists go on conferences? The answer should be obvious. If there are fewer cardiologists in the hospital, you would expect worse patient outcomes. Seems plausible. But, this study found the opposite. Specifically, the study found that for patients presenting with cardiac arrest or major heart failure, to a teaching hospital, their chances of surviving were improved if they showed up during a conference period, when a lot of cardiologists were away. And it isn’t a small effect either:
- For cardiac arrest patients, their chances of still being alive after thirty days were a full ten percentage points higher if they were admitted during a conference period.
- For high risk heart failure patients, the chance of the patient being dead at thirty days decreased from 25% to 17% if they were admitted during a conference period.
Why? Well the best explanation seems to be the via negativa approach of Taleb’s. Or as the program called it, the “less is more” rule of thumb. What the authors of the study think is happening is that the doctors who remain behind at the hospital, covering for their colleagues at the conference, are being more cautious. They are less likely to order interventions and more likely to observe the patient and wait. And it’s the lower intervention rate that lowers the rate of adverse side effects (or the “iatrogenics” in Taleb’s book). It would seem that for cases where the decision is borderline whether to intervene or not, it’s actually best not to intervene, and so avoid the unintended adverse consequences.
Have a listen to the full episode:
So the “do nothing” heuristic would seem to have applications in investment markets and in medicine. Have you come across cases in your own professional career where you “stared down” the urge to do something and it resulted in good outcomes?