One wintery day almost a decade and half ago, I was walking along the frozen Charles River in Cambridge, Massachusetts, having a wide-ranging conversation with another real estate investor. We were both on a three-week sojourn at Harvard Business School, trying to take our game a few levels higher. The course was oriented toward business owners and presidents and included half-day classes on Saturday so we would not wander too far afield—run home to our businesses and work the weekends.

My colleague spoke some words of wisdom that have stayed with me: “In real estate, you make your money on the deals you do. You keep it on the deals you don’t do.”

While I have an inborn bias for action and a burning sense of urgency, I have learned that sometimes the wisest course of action is to do nothing. To patiently wait out the storm, keep my powder dry, wait out the doldrums. Now it helps that I’m a private company with no quarterly conference calls to make, no scrum of yammering analysts that must be fed, no impatient stockholders saying “Well, don’t just stand there! Earn your keep! Do SOMETHING!”

I read that in the last year of the liquidity meltdown, financial institutions gave up half of the earnings they “made” in the prior FIVE years. So much for above-average returns and financial brilliance and, no, there is no sign of any clawback of all the bonuses, raises, and options given during those five years.

The Tisch real estate family is famous for its prudence and its patient bargain hunting: “’I’m happy not to be a hero now,’ says James Tisch, CEO of Loews Corp.” as he sits on $12.5 BILLION in cash. “’If there’s nothing to do, do nothing. But many CEOs can’t do that. If you’re an action junkie it’s going to get you in trouble…. No. 1, don’t bet the company…. Second, watch out for the downside.’” (Wall Street Journal, June 17, 2008; Page C1)

Do you have the internal fortitude, the true grit, the emotional ballast, the character, the maturity to not be stampeded by the crowd? To keep your head when all others are loosing theirs? To “if there is nothing to do, do nothing”? The wisdom to recognize the difference between opportunity and trap?

Hint: It often lies in the ratio of the upside to the downside, in your ability to recover if what was always true suddenly is no longer true. How deep are your reserves? The old consumer adage, “If it is too good to be true, it probably is” applies to business as well. There is a lot to be said for sleeping well at night.

Have a solid balance sheet and strong cash reserves and an investment philosophy oriented toward the long haul.

And if there is nothing to do, do nothing.

This is a classic from the NSC Blog archive, originally posted June 26, 2008.