“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
Everyone is a long-term investor up to the moment the stock market correction or crash occurs. “During bull markets, everyone believes that he is committed to stocks for the long term,” opines Billionaire investor William J. Bernstein. “Unfortunately, history also tells us that during bear markets, you can hardly give stocks away. Most investors are simply not capable of withstanding the vicissitudes of an all-stock investment strategy.
Yet, successful investing is a long game. It takes “time, patience and discipline”, says Warren Buffett. When you put money to work in markets it’s best to set it and forget it. Billionaire investor Warren Buffett quipped, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Myopic Loss Aversion
Investors must manage the battle between fear and greed in their heads and stomachs to be successful in building wealth in the long term. Unfortunately, the fear of loss is generally a more powerful force that overwhelms many investors during periods of steep losses in stock prices.
Even though they don’t plan to liquidate the investment for decades, many investors panic during market corrections and bear markets; causing them to miss out on the often sharp recovery in prices that follows.
Being a long-term investor is more about inner attitude, about positive mindset and about behavior then the asset holding timeframe. Being a long-term investor requires a confidence based on clarity of purpose, rigorous research, and insightful analysis.
Long-term investors should invest in sustainable and growing companies – companies that are likely to be around and that are increasing their intrinsic value for the long term.
Behavior is an essential value of a long-term investor since behavior drives results. Thus, staying calm during a downturn is indeed a critical quality of any long-term investor,
For long-term investors, if you are clear about your investment principles, confident in your investment’s thesis, and genuinely believe in your investment strategy, a market downturn is the best time to invest in companies.
Overall, investing is all about focusing on your financial goals and ignoring the noise and mania of the markets and the financial media. That means buying and holding for the long term, regardless of any news that might move you to try and time the market. “There is only one way of investing, and that is long term,” says Vid Ponnapalli, a CFP and owner of Unique Financial Advisors and Tax Consultants in Holmdel, N.J.
Investor, Mohnish Pabrai, says it best, “You don’t make money when you buy stocks, and you don’t make money when you sell stocks. You make money by waiting.”
“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” Warren Buffett
References:
- https://www.forbes.com/advisor/investing/tips-for-long-term-investing/
- https://www.institutionalinvestor.com/article/b18x07sykt3psy/What-Long-Term-Investor-Really-Means
- https://www.forbes.com/sites/forbes-shook/2022/05/10/an-investors-mind-6-ways-it-can-block-the-path-to-long-term-wealth/?sh=7ca749405f7c