When people say that time in the market is more important than timing the market, how much time are they talking about?

Decades!

it is a low time preference thingy

In this day and age, investing is overrated. Anyone who claims to invest is all of a sudden hoisted on a pedestal by others. People are rushing into investing these days like the gold rush of 1880s, believing that investing holds the key to the elusive pot of gold. However, the truth cannot be further from the reality.

In reality, investing has always been and will be a marathon, not a sprint. Those who treat it like a sprint will, not unexpectedly, drop out of the race early. To become a successful investor, one must ground himself/herself with solid investing philosophies. Core philosophies is your lamp in the dark and what you fall back upon when crisis hits. Furthermore, many of these principles actually help you beat the stock market because they play to your strengths as a retail investor. Such strengths form the core principles of a successful investor.

1. Invest for the long term

As retail investors, the only way to beat the market is to have a really long-term view – anywhere from 5 to 10 years. The longer, the better. Studies have shown that only 40% investors have positive returns if they invest for 1-2 years. However, over a given 10 year period, almost 100% of investors have positive returns. If you are able to hold a stock (which is really a company) without selling for that duration, you’re already better than the majority of investors out there.

As retail investors, we cannot afford large amounts of time and resources to conduct in-depth research into a company, or follow every quarterly earnings of a company. Hedge funds and analysts have full time jobs to do precisely that, while most of us hold full-time jobs ourselves. However, that does not mean we do not have an edge over such professional investors.

One significant advantage is our holding power. Wall Street is filled with speculators and short term investors who readily reward companies with huge promises of quick success. Hedge funds submit their financial reports to clients every 3-6 months, and can ill afford to hold a company which takes a long time to deliver. It’s not uncommon to see companies selling off when they fail to meet their quarterly targets due to temporary setbacks.

Retail investors on the other hand have a time horizon of 5-10 years, and can ignore the short-term gyrations and bumps along the road. If a great company has a massive sell-off because of a temporary setback in quarterly earnings, a successful investor will simply recognize that the company’s value did not change but its price has become cheaper.

If one holds the long view, he can outperform these short term investors. As Warren Buffet says, the best thing that can happen is when a great company gets into temporary trouble. Another a fundamental reason why we should hold the long term view is simply because a company takes years to establish itself and build its reputation. To become great, it can take decades.

Some Examples

When Amazon first started out to establish its online presence, it was hugely unprofitable and understaffed. Bezos started Amazon out of a garage selling old books. Yet, its early team persisted in its efforts. The dot com bubble of 1999 brought its share price to a giddy height of $100, only to come crashing down to $7 in 2001. Yet, after years of winning customers’ trust and faith, aided by the tailwind of e-commerce, Amazon has risen 75,000% to cement its place among the greatest corporations of America. Indeed, some things simply cannot be rushed.

As I look back on my years of investing, some of my companies are only just starting to pose excellent gains. Galapagos (GLPG) is a favorite biotech holding of mine that I purchased back in 2017 for $95. It took nearly 2 years for its clinical trials to be completed and results released. It’s excellent results garnered further investment from Gilead Sciences, bolstering its share price to an all time high of $185.

It is no surprise that excellent companies only shine when given enough time. After many years, your winners will eventually grow into sizable positions of your portfolio and your losers will become an insignificant portion. Holding onto your stocks which you still believe in, is surely the best way to compound your wealth.

2. Tune out the noise

We live in an age where our senses are continuously bombarded by financial news. Even more comical are the reports that have been calling for a recession or economic meltdown as early as 2014. The truth is that the media needs to generate sensational news and will continue to scare investors weekly by foretelling the next economic crash. However, the only job financial journalists serve is to make the weathermen look good. Wise investors will know simply to tune out the noise.

However, buoyed by the tsunami of recession bells in the media, investors tend to become lost in the noise and fearful. Market corrections happen when fear, one of the 2 most contagious emotions in the market, overpowers greed. Once fear takes hold, it spreads like wildfire. In Dec 2018, against the backdrop of Fed’s rising interest rates and a trade war, fear was palpable. Investors became frightened, and in a whiff, billions of dollars was pulled out of the equity market. By Christmas’s eve, the market was 19% down from its peak.

Hindsight is always 20/20, but savvy investors ignored the noise and did not sell their equities. Selling your equities to buy them back after “the trouble is over” is also a dangerous mindset. More often than not, before the investor realizes the danger is over, the market would have rebounded to all time highs. I too was susceptible to that mistake and sold Mercadolibre (MELI) in Dec 2018 for $300, but did not buy it back when the market rebounded. As it turned out, Mercadolibre (MELI) went on to break new records at around $640 now. Oh, the heartache!

Now, perhaps the only “noise” that could be worth paying attention to are the quarterly reports of companies. They reveal the trajectory of companies but as advised, never sell a great company going through temporary trouble.

3. Be dead to your emotions

Emotions are best left at the door in investing. As Warren Buffet says, the gut is the more important organ in investing than the brain. The stock market is extremely volatile and can surprise you when you are least expecting it. However, great investors react with equanimity to the ups and downs of the market. You’ll be surprised at how you would feel when your portfolio takes a 20% hit alongside the market, like in Dec 2018. “A shitty feeling” would be pretty much an understatement.

Fear is contagious and most investors found themselves selling their equities in Dec 2018, convinced a recession was about to hit. However, being dead to emotions means casting fear aside and recognizing that the market will eventually recover. One can even think of it as your favorite department store posting 20% sales – why is everyone running away from it instead of buying it ? Perhaps it is due to the fact that most investors cannot ignore the deep red ink on their existing portfolio and remain rooted in fear. Yet, opportunities emerge in times of crisis. Savvy investors who took the plunge and invested in the market correction, were duly rewarded when the market rebounded.

It is even hilarious to note that the some of the best investors who outperformed the market were the dead. Sometimes, one is better off not checking his/her portfolio than allowing his/her emotions to ruin everything.

4. Strike when the iron is hot

Investing is more like watching the paint on the wall dry than starring in a Bruce Lee film. In fact, Warren Buffet can remain inactive for years as he wait for a good deal to come by. He describes, “The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘swing, you bum!'”

Sloth-like behavior is frowned upon at work but crucial in successful investing.
Unfortunately, many people tend to do the opposite. The difference between a good and average investor, is that a good investor dares to step up to the table when presented with a good pitch. The best pitches happen when either the market panics or when great companies meet temporary troubles. They can create once-a-lifetime opportunities, but are lost in moments of deliberation.

In Dec 2018, Apple fell from its $220 high to $140s on fears of slowing growth and trade war escalation. This was an outstanding opportunity for prepared investors to take advantage of. However, it didn’t last longer than a week, illustrating why savvy investors must strike when the iron is hot.

As you can see, it is extremely difficult to switch from sloth-like patience to immediate,decisive action within days. Yet, a masterful investor can skillfully navigate this balance, while removing his emotions from the process. Investing is not the faint-hearted, but can be very rewarding when you see the eventual success of your portfolio.

For the full article, you can view it at:

https://onceamillenium.com/how-to-invest-with-t...

Cheers,

Marcus.