How To Win at Investing?
To win at investing, you either have to do something that other investors aren't smart enough to do, or do something that other investors aren't willing to do.
The first one is really hard.
The second is much easier. Here’s what one can do:
Embrace Volatility
Think Long-term
Pay Attention to Business Fundamentals, not the Stock Price
Embrace Volatility: The Ride Won’t be Smooth
Volatility is common and should be expected. In the last 100 years, look at how many times we’ve had declines of 20% or more. If history is any guide, you should expect a 20% decline every 4-5 years.
That said, we’ve already seen that even the largest most well known businesses fluctuate tremendously. Rather than being afraid of volatility, embrace it, and take advantage of it instead.
Avoid The Competition By Thinking Long-term
The stock market has attracted some of the smartest people in the world. But, most of them are impatient. The average stock is held for less than a month! Therein lies the opportunity.
To win in the stock market, you can set yourself apart and avoid serious competition by taking a long term approach.
The chart below shows us the Periods of time that earned a positive return.
Wall Street Focuses on the Left end of the Chart. (Red Bars).
You and I should focus on the right! (Purple Bars)
As you can see,
If you hold stocks for one day, your odds of making money is a coin toss.
But if you hold stocks for 3, 10, 20 years or more, the historical odds of making money rises quickly.
If you hold stocks for one calendar year, your odds of making money are 70%!
Focus on Business Fundamentals, Not Stock Price
In the short run, stock price movements can be unpredictable. In the long run, stock returns are driven by business fundamentals, things like revenue and growth and profits. But too many investors focus only on what the stock is doing and not what the underlying business is doing.
By focusing only on stock prices, investors miss out on other critical information, just like the Monkey Business Illusion. This can lead to bad decisions.
Again, to win at investing, you either have to do something that other investors aren't smart enough to do, or do something that other investors aren't willing to do. The first one is really hard. The second is much easier. Here’s what one can do:
Embrace Volatility: The Ride Won’t be Smooth
Think Long-term
Pay Attention to Business Fundamentals, not the Stock Price
CONTINUE LEARNING WITH ME
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