Keys To Investing Success – Patience And Less Activity

Have you had this experience? You sell a stock because it keeps going down every day. Right after, you sell it, the stock reverses and starts going up.  Not only does it go up, but it goes on to be a huge winner. In this case, you chose the right stock but you just couldn’t manage the volatility of that stock. Your time frame was too short.

One of investors’ big regrets is not holding on to stock longer. The longer you hold your stock, the more the odds are in your favor. Compounding takes time and patience, but the rewards are worth it.

When it comes to investing, you are your own enemy. You buy and sell precisely at the wrong time, causing your net worth to suffer in the long run.

Patience is the key to investing

We live in an age of too much information. Business news is on TV non-stop, we consume too much news on blogs, and on social media. As a result, investors’ holding period has gotten shorter over time. The average holding period for a stock was around 8 years in the 1960s. Today it less than a year.

There is a famous Jesse Livermore quote:

It never was my thinking that made the big money for me. It always was my sitting

Another quote that gets the point across is :

Your portfolio is like a bar of soap; the more you touch it, the smaller it gets.

Fidelity ran an internal study to identify the accounts that had the best returns between 2003 and 2013.  It found was that the top two best performing accounts fell into two categories:

  1. People who had forgotten that they had Fidelity accounts
  2. Dead people

Inactivity is a good thing. The more you fiddle with your portfolio, the worse will be your returns.

Invest in quality stocks

Quality stocks may mean different things to different people. In my opinion, quality stocks are stocks of companies that have a sustainable competitive advantage in the market. They can be of any size and in any sector of the market.  Build a diversified portfolio, add to it when you have money.

If you want to play it conservatively, consider dividend-paying stocks – especially those that have been raising dividends for many years. Dividend stocks will give you income and you can choose whether you want to dividends or use it for other purposes.

Market timing Vs Time in the markets

Everyone tries to time the market but market timing is difficult. The total return for the year is made in 10 to 20 days. The stock market just chops around the rest of the year and goes nowhere. It is very hard to time your investments such that you are invested in the market during those best-return days.

The best course of action for most investors is to stay invested throughout the year. This will guarantee that they will catch the full-returns the market has to offer.

Importance of emergency funds

Emergency funds are important not just because you could lose your job or because you could have unexpected medical expenses. Having an emergency fund means that you will not tap your stock portfolio when something unexpected comes up. This will allow your money to compound without interruption for many years.

Sell rarely

Get in the habit of owning stocks for at least a decade or more. Some of your stocks may be duds but if you choose wisely, most of your stocks will do well over the long term.

Investing should be boring

Many people treat investing like a casino. They need the adrenaline rush from having winners and losers. Investing is supposed to be boring, not a source of entertainment.

Bottom Line

Ignore the experts, ignore the noise. Buy quality stocks and stay the course.  It’s fine to check your stock prices every day but don’t trade your stocks often. You will do very well in the long run.

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