Don’t dive at every penalty: the investing case for doing less

One of the best rules of investing is also one of the most difficult to follow: do less.

Yes, portfolios need building, contributions need adding, and the occasional rebalancing is sensible housekeeping. But for most investors, most of the time, better behaviour comes not from doing more but from benign neglect.

The difficulty is that humans are not built for calm inactivity in the face of noise. When things feel uncertain, exciting or simply in motion, we want to act. In many areas of life, that instinct serves us well. In investing, it is often ruinous.

There is a nice example from football. Goalkeepers facing penalties usually dive left or right, even though staying in the middle would often improve their chances. Why dive? Because doing nothing feels negligent. Investors have the same problem. When markets lurch about, or when some story is everywhere, inactivity can feel like failure. So we trade, tweak, chase, rotate, tidy, crystallise, re-enter and generally make ourselves busy. The result is usually more activity, more cost and less return.

The itch exists. The question is how to scratch it without tearing the skin off.

The problem with total abstinence

For some investors, the answer really is to do almost nothing. But not for everyone.

There is a kind of earnest investing advice that says you should simply buy a diversified portfolio, ignore it and never touch anything again. As a technical description of the long-term logic, this often sounds good. As behavioural guidance for real humans, it can be incomplete.

Many investors enjoy investing. Some like learning about markets. Some want to express a view now and then. Some simply find total passivity emotionally impossible. Telling those people to suppress every urge to act can work for a while, but often only in the way extreme diets work: admirably in theory, and then rather badly in practice.

If you tell yourself you must never act, every urge to act starts to feel illicit, exciting, and strangely important. A good investing system channels behaviour, rather than merely suppressing it.

A place for the itch

One useful solution is the “play pot”.

This is a small, bounded part of your investible wealth that exists to absorb the urge to tinker, speculate, explore or indulge the occasional idea that would otherwise leak into the serious part of your portfolio. It lets off steam safely, protects the engine room, and stops the itch from vandalising the sensible bit.

That does not necessarily mean a separate account stuffed with single stocks and crypto. Mine is not. My own play pot is a 5% slice of my overall asset allocation that I deliberately leave unallocated to a specific asset class. I do not use it often. Much of the time, it is simply invested in a diversified equity fund, because I think that is usually the best default bet over the long term.

At other times, particularly when markets feel frothy, I may leave it unused in cash. I know that being invested is usually better than sitting in cash, even when markets are high. But holding this small slice as dry powder gives me the comfort of knowing I can buy when markets fall without having to sell anything else first.

I could use it to express the occasional whim; it provides an escape valve for nagging worries and fear of missing out.

But the play pot only works if it is genuinely small, clearly bounded and governed by rules of its own.

A containment device

The play pot is not a second portfolio with delusions of grandeur. It’s not where your “real alpha” lives. It’s not an excuse to smuggle concentrated risk into your life under the cover of self-expression. It is a containment device.

A good rule of thumb is that the play pot should be small enough that it cannot materially damage your future, but large enough that it scratches the itch. For many investors, that is no more than 5% of investible assets. Sometimes less.

And once you have one, its size must be controlled. No borrowing against it. No raiding the core to refill it after losses. If it grows beyond a pre-set percentage of your overall investible wealth, bank the gains back into the core. A lucky streak is not a reason to rewrite the constitution.

A play pot is not there to make you rich. It is there to stop you from making yourself poor.

Why pause points matter

Even a play pot benefits from friction. If the urge to act is the problem, your system should make acting slightly harder: not impossible, just hard enough that impulse has time to cool.

A 24- or 48-hour pause, a written rationale, or a quick check against your “Investing Constitution” is often enough. If the idea is still good tomorrow, it can usually survive not being acted on today.

Most bad investment decisions come less from missing information than from acting while under its influence.

The pause is not a nuisance. It is the treatment.

There is nothing wrong with curiosity

None of this is an argument against learning, curiosity or even active investing in principle.

The problem is not activity. It is uncontained activity.

If you have genuine expertise in an area, time to apply it properly, and the humility to recognise the limits of that expertise, then active decisions may have a place. But most investors greatly overestimate all three. What they call conviction is often narrative comfort. What they call research is frequently confirmation bias with bookmarks. What they call skill can be luck with a strong following wind.

The role of the play pot, the pause point, and the wider constitution is not to suppress all action. It is to ensure action happens in a form and at a scale that your long-term plan can withstand.

The uncomfortable solution

If doing nothing feels impossible, do less damage.

Give the itch somewhere small and safe to go. Build friction into your decisions. Keep the serious money in the serious portfolio. Do not confuse activity with progress, or excitement with edge.

Most investors need fewer ways to hurt themselves, not more opportunities.

This article is part of an ongoing Currency series on how behavioural finance can help investors make better decisions. 

If you’d like the full framework behind these ideas, including tools to align investing strategies with your financial personality, Greg B Davies’ CPD-accredited course, The Art of Behavioural Investing, created with 42Courses and Oxford Risk, walks you through the approach step by step.

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