August 2013: The Art of Letting Go

Posted by on Aug 19, 2013 in MFA Insights


The Art of Letting Go

The Chinese philosophy of Taoism has a word for it: “Wu wei.” It literally means “non-doing.” In other words, the busier we are with our long-term investments and the more we tinker, the less likely we are to get good results.

That doesn’t mean, by the way, that we should do nothing whatsoever. But it does mean that the culture of “busyness” and chasing returns promoted by much of the financial services industry and media can work against our interests.  The fund managers we work with constantly review the holdings and make changes in individual stocks or bonds to keep the fund properly invested.  These changes are not apparent because they occur “beneath the surface”, but it means that an advisor stirring the pot just to look busy most likely is not adding value. 

Investment is one area where constant activity and a sense of control are not well correlated. Look at the person who is forever monitoring his portfolio, who fitfully watches business TV, or who sits up at night looking for stock tips on social media.

In many areas of life, intense activity and constant monitoring of results represent the path to success. In investment, that approach gets turned on its head.

What’s more, we are programmed to focus on individual items that interest us—like glamour stocks [Facebook comes to mind]—instead of evidence based approaches, such as the degree to which our portfolios are tilted toward cheaper and smaller stocks as a group.

The consequence is that most individual investors earn poor long-term returns.

This is revealed each year in the analysis of investor behavior by research group Dalbar. In 20 years, up through 2012, for instance, Dalbar found the average US mutual fund investor underperformed the S&P 500 by nearly 4 percentage points a year.1  4% per year!

This documented difference between simple index returns and what investors receive is often due to individual behavior—in being insufficiently diversified, in chasing returns, in making bad timing decisions, and in trying to “beat” the market.

This type of individual behavior reinforces the ancient Chinese wisdom: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning.”

We look forward to discussing your investments or touching base on other topics that affect your financial well being.



Diversification does not protect against loss in declining markets. It is not possible to invest in an index.

1. “Quantitative Analysis of Investor Behavior,” Dalbar, 2013.

Adapted from “The Art of Letting Go” by Jim Parker, Outside the Flags column on Dimensional’s website, May 2013. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.