Idle thought- The scientific proof value investors really can be busy doing nothing


Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

Continuing our (very) occasional series on ‘post-war scientific research updated decades later to reveal an unexpected insight into value investing’, which we first ran in connection with hill-farming in the Andes in Fields of experience, The Value Perspective is now pleased to touch on the subject of what the brain does when it is relaxing.

Back in 1953, a researcher at the University of Pennsylvania monitored the brainwaves of a volunteer as well as the levels of oxygen and carbon dioxide in their blood while they set about solving the 50s’ equivalent of a Sudoku puzzle. The aim of the experiment was to discover how much energy the brain expended during vigorous thought.

Comparing the results with those obtained while the volunteer was resting with their eyes closed, the researcher was surprised to find the amount of energy burned while thinking and not thinking was the same. Fast forward several decades and other scientists began to wonder what these findings actually meant – what are our brains up to when we are doing nothing?

More detailed research, in combination with more advanced technology, eventually identified that a hitherto unobserved part of the brain becomes significantly more energy-intensive when people are ostensibly not doing anything else. Gram for gram, this region of the brain burns thirty percent more calories than most other brain cells - in other words, for this part of the brain at least, doing nothing is actually a very demanding process.

As your own brain may well have told you a couple of paragraphs back, this makes for a neat analogy with the world of investment. After all, a sound piece of advice that’s often given by successful investors is that the best response to a particular development will often be to do nothing. Rash actions can often do more harm than good so the deceptively simple recommendation is that as a default it’s better to just sit there and do nothing – but how hard can that really be?

Well, of course, when you are exposed to the everyday ups and downs of the stockmarket – to the constant ‘noise’ of share price movements, company announcements, client questions, broker comment and so forth – then in practice doing nothing can actually be hugely difficult. Given the length of time value investors tend to hold stocks, it becomes even more so and, as a consequence, remaining true to a tried and tested value investment process and only acting when there’s a very good reason to requires a great deal of application, thought and belief.

However stressful it may be at times, the long-term results mean that, for us, value investing remains a no-brainer.


Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

I joined Schroders as a graduate in 2005 and have spent most of my time in the business as part of the UK equities team. Between 2006 and 2010 I was a research analyst responsible for producing investment research on companies in the UK construction, business services and telecoms sectors. In mid 2010 I joined Kevin Murphy and Nick Kirrage on the UK value team.

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