The Virtue of Inactivity

I think the [Berkshire Hathaway’s] record shows the advantage of a peculiar mind-set – not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness. 

It takes character to sit there with all that cash and do nothing.  I didn’t get to where I am by going after mediocre opportunities. 

                                                                                            ─ Charlie Munger

We have heard many variants on this theme from Munger and others over the years, and yet it remains one of the least appreciated aspects of investing.  Really great investment opportunities are rare, and our job is to recognize them when they occur and to avoid putting capital in harm’s way in their absence.  Our track record has been earned while making only twenty-eight purchase decisions in eleven years, and our portfolio has averaged about 20% in cash after allocating capital to these investments.  We would argue that this performance is a direct result of our willingness to be patient.  Had we made twice as many purchases, our results would likely have been worse.  The advantages of patience are blunted, however, if they are not coupled with the preparation necessary to act decisively.  Long-term outperformance hinges on this paradox of patience and decisiveness.