Jim Parker Suggests Letting Go

Practice makes perfect. If at first you don’t succeed, try, try again. While repetition and constant attention deliver success in many areas of life, Dimensional Fund Advisors’ Jim Parker says in investing, that advice “gets turned on its head.” In fact, he says the Chinese philosophy of Taoism has a more appropriate word to govern investing: “wuwei,” which means “non-doing.” I read Parker’s essay, The Art of Letting Go, as a warning to investors who behave like helicopter parents and try to micromanage their portfolio.

Parker’s message is simple: “The busier we are with our long-term investments and the more we tinker, the less likely we are to get good results.”

Of course, he doesn’t suggest doing nothing. It’s important to carefully decide on an asset allocation based on your investment goals, timeline, and risk tolerance. However, once you set that initial allocation, it’s time to tune out the market noise that so often results in the harmful practice of chasing returns.

Parker warns against being an investor “who fitfully watches business TV, or who sits up at night looking for stock tips on social media.” Extending that thought, I caution investors not to behave like that annoying family member or friend who cannot watch a TV program without having the TV remote in hand to continually channel surf without purpose.

Writes Parker, “In Taoism…the student is taught to let go of factors over which he has no control and instead go with the flow. When you plant a tree, you choose a sunny spot with good soil and water. Apart from regular pruning, you leave the tree to grow.”

Of course, there’s more than a philosophical argument against portfolio “busyness,” or investment surfing. Parker shares some compelling findings from the research group Dalbar. He writes, “In 20 years, up to 2012, for instance, Dalbar found the average US mutual fund investor underperformed the S&P 500 by nearly 4 percentage points a year. This documented difference between simple index returns and what investors receive is often due to individual behavior—in being insufficiently diversified, in chasing returns, in making bad timing decisions, and in trying to beat the market.”

Parker closes his essay with more ancient Chinese wisdom: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning.”

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