Long-term investing is hard

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A few ideas I’m thinking about

Here are some ideas I’ve been thinking about the past few days.

Long-term investing is hard

The biggest reasons why more people are not practicing long-term investing are –

  1. It goes against anything taught in business schools – i.e. short-termism – where most influencers/experts come from,
  2. It requires a painful amount of patience as the market eventually gravitates towards value only after a long period of time.
  3. The lifespan of businesses and the period of their competitive advantage are shortening on average,
  4. Our attention spans and holding times shrink and
  5. The noise increases.

Given all of this, long-term investing has become an increasingly difficult and contradictory endeavor. And so few investors have the ability or means to practice it.

In fact, most people participate in the stock market they don’t even understand what they are doing. This is especially true when making money is quick and easy and they are doing great.

Like Aesop’s wolf in sheep’s clothing, they play a role contrary to their true character, often leading them to the slaughterhouse.

However, the lack of patience of these people to invest with a long-term horizon creates an opportunity for a few people who commit to long-term holdings.

In the battle between impatience and patience, the latter wins.

With over nineteen years of practicing long-term investing with honesty and decent success (purely based on personal measures of success) and seeing many of my fellow investors walk away because of their lack of confidence in its continuity and now ruining their decisions, I can vouch for this powerful idea.

Long-term investing is certainly tough, but if you know how to handle its harshness well, it’s definitely worth it.

How to survive the complexity of financial markets

I think the most important qualities you need to survive the complexities of the financial markets are a combination of –

  1. Humility and
  2. Fine-tuned bullshit detector.

You need humility to avoid complicating investing more than necessary and taking more risks than you can handle.

And you need a fine-tuned bullshit detector to protect yourself from the swarms of sales pitches and get-rich-quick schemes that plague the industry.

There are other things – good knowledge of basic arithmetic and accounting, delayed gratification and the ability to live within your means. But the first two are the most important.

Before you seek investment advice

When someone on TV says (or a journalist writes), “You should do X with your money,” stop and think: How do you know me? How do you know my goals? How do you know my short-term expenses? How do you know my risk tolerance?

Of course not. Which means you shouldn’t pay much attention to it. Personal finance is very personal, which means that broad, general advice can be dangerous.

In media, I’m most interested in historical finance, which helps put investments in context, and behavioral finance, which allows you to invest within the framework of your own goals, weaknesses, and skills. But taking direct advice from someone you’ve never met is asking for trouble (myself included).


Note from the One Percent Show

Morgan Housel said this in fifth episode of The One Percent Show as one of his advice to young people on the skills they need to hone to do well in the coming decades –

I think the most underrated skill is learning to get along with people you disagree with. And that’s increasingly important with technology because it used to be, not even that long ago, 10-20 years ago, when most people lived in their own bubbles—their own political bubbles, their own religious bubbles. They just socialized with people who were like them, at home, at work, with friends.

Your sphere of influence in your social group was really tight in your local community. And now, thanks to social media, your social group can be all over the world. You and I are talking on different continents right now. Like things that didn’t happen 10 or 20 years ago, but we do it all the time now. And because of that, you are much more exposed to the opinions of people you disagree with.

The difference of views has always existed. We only know about them now thanks to technology. And in that world there are basically two options. First, you may become increasingly angry that other people think differently than you do, and you have no way of changing their opinions. And that makes you angry and cynical. Or two, you can learn how to get along with people who disagree with you. Now, there will always be situations where people you disagree with so fundamentally that it just won’t work.


Quotes I’m Thinking About

What creates opportunities is an interesting question. Think of the market as a cauldron of minestrone soup. Sometimes someone sticks a ladle and stirs. Mispricing occurs much more often than when it is at the same level for a long time.

It takes a while for all the vegetables to float back to the level they were before. We often do best in turbulent times, especially if we are lucky enough to hold cash.

– Seth Klarman

We never see the world exactly as it is. We see it as we hope it will be or fear it might be. And we spend our lives going through certain modified stages of complaining about this realization. We deny it and then argue with it and despair over it. But in the end – and this is my belief – we will see, it is not despair, but vitalizing.

– Maria Popova

If the day and night are such that you welcome them with joy, and life emits a fragrance like flowers and sweet-smelling herbs, is more flexible, more starry, more immortal – that is your success. All nature is your congratulations and you have reason to hurt yourself for a while. The greatest profits and values ​​are the furthest from being appreciated. We easily begin to doubt whether they exist. We will soon forget about them. They are the ultimate reality. Perhaps the most amazing and real facts are never shared by man. The actual harvest of my daily life is somewhat intangible and indescribable like the shades of morning or evening. It’s a bit of stardust caught, part of the rainbow I’ve pinched.

– Henry David Thoreau, Walden


That’s all from me for today.

If you know someone who could benefit from today’s post, please share it with them.

Thank you.

~Vishal

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