Long Term Orientation
Charlie Bilello on why time in the market is more important than timing the market. Link
“So on August 2, 1956, Wally invested $10,000 into the market. This was, of course, the day the stock market topped. It would proceed to decline 21% before bottoming in October 1957, and while Wally wished he could sell everything at that point, the rules of the trust prevented him from doing anything.”. It went onto become $6,777,777 in 2021.
“But there was no mistake, the numbers were real. Wally was just the living embodiment of the old adage that time in the market is vastly more important than timing the market. By diversifying, reinvesting dividends, and never selling, Wally had reaped the enormous rewards of long-term compounding.”
Learning to Be a Good Investor is Hard
Probably because pain is front ended and reward is back loaded. :-)
Reward is also commingled via Skills vs Luck etc (Fools will have lucky streaks where as value investors might sit and drool). “Good decisions will often receive feedback (in terms of short-term performance) that looks poor. So how can we be confident that we are doing the right thing?”
There are, however, several steps we can take to help address the problem:
Ignore near term feedback as much as possible: So we just ignore wins and losses in the near term.
Focus on general principles rather than specific stories: Understanding principles that are likely to hold through time (the importance of valuation, the power of compounding or the benefits of diversification) is likely to be far more worthwhile than learning specific ideas about markets, assets or trading techniques, which will often prove fleeting. These principles can become models that we can apply across all types of investment decisions. (aka “trust the process”)
Investing is an exercise in dealing with short-term noise, deep uncertainty and profound behavioural challenges. The best we can do is base our decisions on sound principles, always be willing to learn and understand that most short-term feedback can be happily ignored. (Action Items : How do orient towards long term results ? )