Let me share with you a story of the worst market timer, EVER.
His name is Bob.
Bob made his first investment at the start of 1973, just before a 48% crash for the S&P 500. He held onto stocks after the drop, saving a total of $46,000. The next time he entered the market was in September 1987, just before a 34% crash.
Bob held on, making only two more investments before retirement.
The timing of these 2 investments could not be worse. Would you believe that these came just before the 2000 crash and the 2007 crash?!
Despite the unfortunate market timing, Bob still made money. He turned his initial investment of $184K into $1.6M, an annualized return of 9%.
Bob’s secret to success? Holding on and not selling.
Time horizon is everything
A study conducted by BlackRock, covering the period 1926 to 2019, showed that the risk of losing money reduces significantly as you increase your holding period.
No surprises there.
Buying the S&P 500 and holding it for 10 years almost guarantees (95% probability) you a positive return. After 15 years, you have a 99.8% of making money.
Only death and taxes come with a bigger guarantee.
Investing is not all about optimising
Having peace of mind when investing is not talked about enough.
Everyone talks about optimising your portfolio to achieve the highest returns. No one talks about crafting a portfolio that helps you sleep well at night.
Don’t waste your time trying to optimise your portfolio for the best returns, to the detriment of your mental state.
Expand your time horizon, do nothing
The hardest part of being a human in this noisy world is sitting still.
We always feel the need to be doing something, to be productive. Scrolling through social media, listening to music and the list goes on…
Mastering the skill of doing nothing is an art.
“Our favourite holding period is forever” — Warren Buffet
The best way to create massive wealth is to hold high-quality investments over a very long period of time.
It’s simple but extremely hard to execute, especially when the mainstream financial media starts making its rounds.
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 — Charlie Munger
Another underrated benefit of sitting on your ass is you pay less in brokerage fees, taxes and commissions.
In investing, boring is the way to go. If it feels like you’re watching paint dry, you’re likely doing it right.
If it’s excitement you’re after, I suggest you pay a visit to the casino.