When Good Advice Goes Bad

I was waiting to see what the repair was going to cost.  I was in my early twenties and this was only my second automobile, so it was far from new.  A call back from the mechanic had never been a good thing before.  My pickup truck had been getting steadily louder over the time I had owned it, and it was starting to worry me. The phone rang…





That was it.  My old beat-up truck sounded like an old beat-up truck.  There was nothing wrong.  They called me to come to get it out of their parking lot and be on my way.  There would be no charge.  They hadn’t done any work after all, and doing nothing was the best thing for me.  

The detail that you might have missed in that story is the part where I met the mythical honest mechanic.  In all fairness, I’ve met more than a handful of them in the decades since that day, but this was my first.  I had essentially written this auto shop a blank check to sell me a new exhaust and probably make a healthy payday in the process.  They didn’t take advantage though, and in doing so earned my loyalty for as long as I lived within 100 miles of that garage.  Eventually, the day did come when I truly needed to replace that exhaust and I happily paid them to do the job.

On my first visit to that garage, doing nothing was the right thing to do.  It was in the best interest of the customer, and the mechanic turned away the work with that in mind.  What if it wasn’t the right thing to do?  What if there was something wrong with my truck, and it would have been a danger to myself and every other car on the road had I driven it home?  What if the mechanic decided to do nothing because he just didn’t want to do the work.  Maybe it was a particularly challenging problem to fix, or maybe he was just lazy?  In this case, doing nothing would have been a terrible course of action!

Investment portfolios are not automobiles.  We work in an environment of incomplete information, where part of the craft is to anticipate the likelihood of various outcomes and prepare for them accordingly.  Doing this is not easy, and nobody is correct 100% of the time.  This means that occasionally, we must adjust to the changing circumstances of the world around us.  The trick is knowing when and how to do so.

For a great deal of the recorded history of the investment markets, there has been a very popular solution commonly called “buy and hold”.  I am not saying that this solution is right or wrong, but there have clearly been long periods of time where it didn’t work particularly well (think 2000-2013).  Let me be clear.  I am NOT suggesting that investors try to jump in and out of the markets.  Countless studies have proven that we humans are terrible at timing this sort of move, and more often than not end up shooting ourselves in the foot.  There is another bit of advice that has been dispensed quite a bit over the last couple of decades, which can be appealing in its simplicity.   This one is “just stay the course.”  Thinking of this is when I start to remember my first honest mechanic.  Sometimes it is the best thing for the owner to just hop back into their automobile and simply keep on driving as if nothing was wrong because it isn’t.  Just like with auto repair though, sometimes doing nothing is a very dangerous plan.

In “4 Reasons to Make a Movie,” I discussed how a professional’s motivation for being in the profession can have a great impact on outcomes.  The fact is that the motivation for giving an individual piece of advice can also be critically important.  If to “stay the course” means that you will avoid making a costly mistake, then it is wonderful advice, given with your best interests in mind.  What if that’s not the reason though?  What if doing nothing is just a great deal easier than doing anything?  Changing a portfolio can take a great deal of analysis and effort, after all.  What if after a decade or more of always saying “stay the course,” it is simply easier to say it one more time than it is to think of a more useful message?  What if the motivation for giving that advice isn’t necessarily your best interests.

Unfortunately, in the world of investing, immediate outcomes are not always the best determinant of whether or not advice was good.  As I mentioned in “Driving Like a Dad,” it is possible to break every traffic law and still make it home safely.  A good outcome did not make it a good idea to drive dangerously.  So if outcomes are not a good determinant, all we are left with is motivations.  Another person’s motivations can be very hard to discern, however, so we must be willing to ask questions.  A good place to start might be “Why is this the best advice?”  “Under what circumstances would you give different advice?”

The world is changing in dramatic ways.  Even if those changes are not reason enough to adjust your course, your life also changes in ways that are very specific to your circumstances.  If there are significant changes to your assets, income, employment, or family then it is very unlikely that it is best to “stay the course.”  At the very least, you should seek out some thoughtful counsel.

Related: Is COVID-19 a Prison or Did It Set You Free?