why doing nothing was the quarter's best trade

The second quarter was, by the only measure that matters to me, uneventful. I bought nothing new. I sold nothing. And I think it was the best quarter of decisions I’ve made all year.

That sentence would get me fired at most shops, where activity is mistaken for work. But the longer I do this, the more convinced I am that the returns are earned in the years of holding, and merely recorded in the moments of buying and selling.

what actually happened

Three things moved the portfolio this quarter, and none of them were me.

The businesses I own kept compounding. Moody’s raised guidance. My index positions did what index positions do. And the cash I’ve been accused — mostly by myself, at 2am — of hoarding sat there earning a real yield while I waited.

Meanwhile the watchlist got longer, not shorter. That’s the tell of an expensive market: more wonderful businesses I’d love to own, fewer of them at prices that leave a margin of safety.

the temptation to act

The hardest part of a quarter like this is the pull to do something — to justify the attention I pay to markets by trading against it. Charlie Munger’s line is the one I keep taped to the inside of my skull: the big money is not in the buying and the selling, but in the waiting.

So I waited. I added to the cash pile. I let the watchlist grow. And I reminded myself that a pass is a decision, a full one, and often the right one.

where I’m looking

Two names on the list are within about 15% of where I’d start a position. I won’t name them yet — not out of secrecy, but because saying them out loud tends to make me want to own them before the price agrees.

If the market gives me the price, I’ll write the letter explaining the buy. If it doesn’t, I’ll keep waiting, and that will be the letter instead.

— Sandro