Investing is hard*.
Success as a stock-picker requires, among other things, a decent understanding of business, accounting, economics, finance & psychology. It requires discipline, objectivity and emotional fortitude.
Most important of all, successful investing requires time. A lot of it.
Time to educate yourself. Time to do research. Time to manage your portfolio. And, perhaps hardest of all, time to wait. In fact, if you’re not prepared to spend a lot of time patiently waiting, any mastery of the other skills will largely be for naught.
The best gains to be had in the share market — the ones that deliver meaningful and enduring wealth — take years to realise. It’s not the stock that gains, say, 50% in a given year that matters (although that’s nice!); it’s the one that delivers years of compounding returns.
Shares in Promedicus (ASX:PME), for example, more than doubled last year, but that’s nothing compared to the near 10x return that long-term shareholdres have enjoyed over the past 5 years. A 26% annual return for Cochlear (ASX:COH) last year was a great result, but it’s the near 400% gain over the past decade that’s far more noteworthy.
Patience matters because it simply takes time for companies to deliver on expectations. It matters because even the best companies will suffer through periods of stagnation, or poor market sentiment. Most of all, the awesome power of compounding is only evident over longer stretches of time.
It’s not surprising that the better performers on Strawman tend to be those that trade infrequently. They top the leaderboard not because they are hyper-active traders with an uncanny ability to time the market, but because they stay the course in a range of carefully selected stocks. Indeed, those that are always buying and selling tend to be the ones that lag.
The great Charlie Munger said it best:
“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.”
“Sit on your ass. You’re paying less to brokers, you’re listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum.”
Charlie’s partner in crime, the highly quotable Warren Buffett, put it this way:
“The stock market is a device for transferring money from the impatient to the patient.”
If you’re not prepared to stay invested for at least a few years, the share market is not for you. But if you can look beyond the near term, you have a very real and valuable edge on most other investors.
Do the work, make your purchases, and get out of the damn way!
*Note: Investing doesn’t have to be hard. You can virtually guarantee yourself a decent long-term return by passively investing in a low cost index fund. It requires next to no work and, if history is any guide, you’ll likely beat most industry professionals. It’s not sexy, in fact it can be downright boring. But unless you are prepared to put in the work required of direct investing (which can be very rewarding, not to mention intellectually stimulating), it’s the only way to go.
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