The Urge to do Something

Sydney M. Williams

Thought of the Day

“The Urge to do Something”

February 8, 2010

There is an urge, natural to most of us, that doing something – anything, no matter how destructive – is better than doing nothing. It is an affliction, as common within the halls of Congress as it is among those who make their daily bread on Wall Street. The urge becomes more demanding during times of crisis, creating opportunity for quick-witted traders and invoking such irreverent platitudes, among politicians, that a crisis is a terrible thing to waste.

Green eye shades and long term investing, a staple for investors for decades, have given way to fast stock trading, dark and algorithmic trading. Exaggerating the concept, one can conclude that computers, a boon to those whose income depends upon turnover and quick trading profits, have become a bane to owners of capital – especially to those whose investment horizon is measured in years. This is not to disparage computers. Most of us could not do our job as effectively or as efficiently without them as with them. But the decline of contemplation and the rise of hyperactivity are symptoms of our time and show no signs of reversing.

Spending a week in Florida, during which the principal daily decisions are with whom to play tennis in the morning and where to take a postprandial nap in the afternoon, provided the perfect venue to think “big thoughts”. Future growth, the generator of tax revenues, is dependent upon investment – by individuals, institutions and corporations. The tax code can be (and is) used to influence behavior. One possibility would be to index capital gains. For example, day trades could be taxed at 90%, while investments held more than five years might incur no tax, with a sliding scale between the two extremes.

Politicians are equally guilty of attention deficit disorder and the mischief such conditions bring. Longer term problems, like growing deficits, Social Security, Medicare and Medicaid, are constantly pushed off to the next generation. Not unnaturally, Congress finds it easier to spend (doing something) than reducing deficits (doing nothing). Unspent funds are like spare change to a teenager. The returned TARP funds (re-paid with interest) by major banks, supposedly earmarked (to use a well-known Washington word) for debt reduction, are now to be used to fund other programs. On another matter, one cannot help but wonder, will the government’s 60% ownership of General Motors impact Congressional hearings into the Toyota recall?

But commonsense and solutions often appear at the most unexpected moments and in unanticipated ways. While Berkshire Hathaway has lagged the market since its rise from last March (50% versus 55%), Warren Buffett, with his steady focus on long term investments, has proved far superior over the past ten years than the market (plus 24%, versus a negative 22% for the S&P 500). The much maligned – by the mainstream press – Tea Party folks, with their emphasis on fiscal responsibility and small government seem a throwback to Newt Gingrich’s Contract with America in 1994, a movement which helped foster the surpluses of the 1990s.

While I would not expect every investor to begin emulating Mr. Buffett, or for Washington to immediately become fiscally responsible, the world is in constant flux. Perhaps it is my Panglossian naïveté, but the problems we face seem so obvious and are so widely discussed, the future may be not as bleak as rational analysis would have us conclude.