When Doing Nothing Makes Sense

Sometimes doing nothing makes the most sense.

Stocks have basically risen since 2009. Corrections have been sparse. When they've occurred, they've been relatively shallow - except for the vertigo-inducing drop in March 2020. But if we "x" that one out, things have been mostly smooth sailing, looked at from an historical perspective. 

(We "x" out that March 2020 kerfuffle because it's likely it wasn't anything resembling a real bear market, just a knee-jerk response to the complete unnatural response of governments (the first stage of the great Mess we've been dealing with) to the completely unnatural C-Virus pandemic.)

Lately, though, despite some increased volatility in price action, stocks have traded within a range. At the end of the day, not much going on. Does the recent nudge upward signal a new leg up in the historic Bull Market in stocks? We'll soon find out. 

During the recent trading range activity, we've avoided doing much. It's not so much because of the meandering direction, even with the bouts of volatility. Our doing nothing has been driven by two factors: prospects for stocks going forward; other areas of opportunity. 

It comes down to this: Stocks have been in a bull run seemingly forever. Does it seem likely this will continue ad inifinitum? You could say with the Fed's continuing force-feed of liquidity into the markets and the government's wild spending of money they don't have, stocks can go up forever. Or maybe you see recent earnings reports and think economic activity must be such that stocks can only respond positively. 

Maybe you interpret the increased profits as being simply due to rising inflation, begetting price increases that consumers have - for the most part, so far - accepted, thus inflating bottom lines. That view implies we don't need increased actual activity on the part of the consumer, simply a sustaining of past levels of activity. Indeed, we could even see some decline in activity where profits benefit in response to companies raising prices.

But one has to ask: How long can this continue? Can companies raise prices to keep up with inflation forever?

So "forever" does seem a bad bet, from that perspective. It seems a bad bet from the perspective of a never-ending Bull Market in stocks as well. Seriously.

Of course, that doesn't necessarily mean selling out and running to cash - at least for now. But it could mean putting any additions to stock positions on hold - i.e., doing nothing.

So much for doing nothing based on an assessment for the prospect for stocks going forward. What about other areas of opportunity?

There are such areas. But doing nothing - at the moment - can make sense as well. Take Gold as an example. It's historic Bull Market, upon awakening in 2000-2001, underwent a nasty (albeit historically natural) correction after 10 years of relentless bullish activity. That correction, begun in 2011, arguably ended in 2016. The revival wasn't too dramatic, but prices did recover, setting a new all-time high, before declining in a mini-correction of the resumed bullish activity. We're still in that mini-correction, albeit perhaps seeing light at the end of the tunnel. 

In the face of such a major trend, interrupted by a normal - albeit it dramatic - correction, followed by a resumption of the major trend, speckled with what we might call an "annoying" mini-correction, one could have taken positions in anticipation of the resumption of the major Bull trend. We did that - to an extent.

Or, once could have decided to wait out the mini-correction before adding to positions to take advantage of the coming resumption of the major bull trend. That would be the "doing nothing" response. We did that too.

So doing nothing can make sense under various circumstances; which is why we've spent a chunk of our time doing nothing when it comes to making trades. But in the midst of doing nothing, a lot goes one. It's not like we're not spending our usual time and effort studying, researching, analyzing. That's not doing nothing. 

As long as the doing nothing doesn't become a bad habit, it can make a lot of sense. Right now, we're reminding ourselves that doing nothing can get a grip and prevent taking action when it makes sense. With that, taking some action may very well make sense in the not-too-distant future - at least when it comes to an area of opportunity presented (we believe) by gold and precious metals in general.

So amidst the doing nothing, a doing something may arise and manifest itself in some trades - soon. We'll see.