There is no financial crystal ball, but history has shown that a steady, disciplined approach can weather market ups and downs better than trying to time it.
Over the years, I realized that my successful investments all had one thing in common. They weren’t based on timing the market. Instead, I focused on building positions slowly and holding them over the medium to long term. By shifting away from short-term strategies and adopting Buffett’s long-term focus, my odds of success increased significantly.
Yes, I know this may sound boring, and you might argue that such a method is unlikely to deliver massive, immediate returns. But after losing 9 out of 10 trades trying to time the market, I realized boring is beautiful.
Buffett once said, “The stock market is designed to transfer money from the Active to the Patient.”
And I couldn’t agree more. Investing is not about swinging for the fences. It’s about being in the game for the long haul, letting time and the power of compounding work for you. Just consider that his firm, Berkshire Hathaway, recently became the first non-tech US company to cross $1 trillion in market capitalization. That is a testament to the strength of this approach.
That said, I’ll admit I don’t have the accounting prowess to dive deep into individual company financials. That slice of the investing cake is just too big for me. Instead, I chose a simpler path, investing in an index ETF, specifically the S&P 500. This immediately lowered my risk through diversification, giving me exposure to the largest and most stable companies without the need for intricate analysis.
Wikipedia: The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
Let me show you what I mean.
If we look at the chart above, which shows the past 3 months, and assume you’re trading on a short-term basis, you can see several instances where you might have bought at the top and sold at the bottom , simply due to reacting to market conditions. It is easy to get caught in these swings when you are focused on short-term trading.
Now, let’s switch things up a bit. Imagine you bought into the index right before COVID struck, arguably a terrible time to invest. However, fast forward 5 years, and you would be sitting on a 50% profit! Not bad at all, considering the volatility and uncertainty that followed.
Of course, don’t get me wrong, there are people who are amazing at short-term trading, but I’m not one of them. And honestly, I think most of us aren’t. Otherwise, we would see plenty of millionaires walking around by now! 😄
Given the choice between a high-risk, high-stress trade with a small chance of success and a more “boring” trade with a higher chance of success, I would choose boring any day. It might not be exciting, but it offers a much better chance of success without the emotional rollercoaster.
So, if you’re struggling with your trades, perhaps it’s time to consider Warren Buffett’s approach. You might be pleasantly surprised and, more importantly, finally find the time to relax and enjoy life the way it should be.
Until the next time, take care and be well.