16/1/22
The word investing covers a range of topics, both financial, such as real estate investing, and non-financial, such as investing in oneself. The type of investing I am going to briefly cover here is stock market investing, and my view on it.
In theory, stock market investing is simple, buy low and sell high. In practice, it is anything but. There are numerous reasons for this. One such reason could be a lack of understanding of the stock you hold, subsequently meaning you are unable to accurately determine value, both when buying and selling the security. Another reason is laid bare in the following fact:
Peter Lynch ran the Magellan fund at Fidelity from 1977 to 1990. He was extremely successful, generating an annualised return of 29%. However, most of the investors in this fund actually lost money.
This is truly remarkable, and a particularly impressive feat by the individual investor, I might add. There are many different ways to phrase the issue, but I like to view it as a lack of patience. A lack of patience results in irrational and subprime investment decisions being made. In this case, buying high and selling low.
Investing, in my view, is the steady accumulation of capital over a long period of time, likely decades. This time period is specific to the individual, but it is likely rising for all given the increasing life expectancy. I do not think the accumulation has to be in a linear yearly fashion as the market can be irrational in short term periods. But, taken in timeframes of say 5 to 10 years, there should be an accumulation pattern in progress.
I believe one way to increase your chances of success is to adopt Warren Buffett’s approach of “Lethargy bordering on sloth”. It is important not to draw the conclusion that this simply means set and forget. The conclusions that should be drawn is that high trading activity is generally detrimental to long term performance, and you need to give your investment decisions time to work out. It is most definitely the case of a marathon not a sprint.
There are many people who have now turned to the stock market since COVID. But with the societal backdrop of a get rich quick and instant gratification culture, patience is likely to be in short supply. I am sure that when this period is under the microscope several years down the line, there will be plenty of experiences similar to that of the majority in Magellan.
The picture on my blog is a Galápagos tortoise, an animal that I think exemplifies the approach one should take with investing.