If you remember one thing from the following 1,000 words, make it the key to building your long-term wealth: time in market, not time the market.
We’ve all heard the standout stories from your mate’s mate. The lucky bastards who managed to land a 10 bagger in just a few days. They bought low, sold high, and whipped history to death every time they gobbled down too many beers at the local.
Is such a result possible? Yes. Sustainable? Not even in dreams. Very often they have lost more than they have won. You probably only ever hear about the winners too – missing out on stories like this guy who routinely drops his weekly paycheck in slot machines every Friday on the promise of a win that rarely (if ever) comes.
If an investment is fundamentally sound, then theoretically its value will increase over time. Of course, short-term fluctuations occur from time to time. Your holdings might even show a downward trend for a good part of the time, but trust the process and invest with confidence.
You must remember that time is on your side. So does the added benefit of not having to dump a huge chunk of your savings into a single opportunity all at once. Regular investments at weekly, fortnightly or even monthly intervals allow you to have a more balanced approach to investing. The Sharesies platform, for example, has introduced a new auto-invest feature that takes stress out of the equation. You can now automatically reload a range of different ETFs that you choose, at the frequency and in the amount that you want. But more on that later.
First, let’s examine the benefits of building long-term wealth with a handful of the greatest minds of investors in history.
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Benjamin Graham and Warren Buffett
The reason these two legends have been lumped together is because their accomplishments go hand in hand. In Benjamin Graham, you have the granddaddy of value investing. In Warren Buffett, you have The smart investor the author’s greatest student – and a fucking rockstar when it comes to long-term playing.
Informed by the principles of discipline, patience and the pursuit of value – tangible value – wherever taught by Graham at Columbia Business School (and beyond), Buffett transformed Berkshire Hathaway into one of the greatest financial services companies in the world in terms of revenue. ; in addition to having amassed a staggering net worth of approximately US$112 billion, which started with nothing more than $6,000 when he was 15 years old. Fun fact: Over 99% of Buffett’s wealth was accumulated after his 50th birthday, according to Forbes.
According to Alice Schroeder – who wrote The Snowball: Warren Buffett and the Business of Life – an integral part of Buffett’s investment philosophy can be traced to the way Graham personified the stock market as the temperamental, wildly irrational, and easily excitable character known as “Mr Market.”
Benjamin Graham asked his students to imagine Mr. Market as their business partner, one who would frequently offer to sell their stock or buy your stock. The beauty of this, however, is that you can always refuse anything Mr. Market offers because they will always come back with something different. As Warren Buffett explained in his 1987 letter to Berkshire Hathaway shareholders:
“Mr Market is here to to serve you, not to guide you. It’s his wallet, not his wisdom, that will help you. If he ever shows up in a particularly stupid mood, you are free to ignore him or take advantage of him, but it will be disastrous if you fall under his influence.
“Indeed, if you are not sure that you understand and value your business much better than Mr. Market, you are not in the game. As they say in poker, “If you’ve been in the game for 30 minutes and you don’t know who the pigeon is, you’re the pigeon.”
“In the short term, the market is a voting machine, but in the long term it is a weighing machine.”
In the 1980s, Peter Lynch rose to prominence managing the Fideity Magellan Fund. During his tenure at what was then one of the most prolific and successful mutual funds, the assets managed by the talented Mr. Lynch grew from US$18 million to over $14 billion. Americans. Even more impressively, he has outperformed the S&P500 index in 11 of his 13 years as FMF’s big boss, posting average annual returns of 29.2%.
How did he do it?
Peter Lynch had some golden rules when it came to investing, variations of which you will find on the Online Variations. Here are some of its most relevant pillars when it comes to investing, especially in the long term:
- Understand what you are investing in
- Avoid anything that “you can’t illustrate with a pencil”
- Avoid trying to predict the future
- Avoid long shots
- Good management is a key indicator of a good business
- Valuing the belly as much as the gray matter to invest
- Expect (some) losses
- Beat the market ignoring the herd
- Assuming you follow all of the above to the letter, “the best stock to buy is the one you already own”
- And above all… be patient
“The trick is not to learn to trust your hunches, but rather to discipline yourself to ignore them. Maintain your actions until the fundamental story of the company has changed.
Modern investing culture may be fraught with chest-thumping and Belfort-isms, but Michael Steinhardt is definitive proof that you don’t have to be the loudest person in the room to be successful in the business. of investment.
Steinhardt’s most notable achievement rivals Lynch’s own track record – 24% average compound annual returns for nearly three consecutive decades. For reference, that’s more than double what the S&P500 was recording throughout the same period.
Now granted, Michael Steinhardt was not strictly a long-term investor, but what can we learn from him? Here are some tips that Steiny outlined in his book:
- Make all your mistakes early in life (hard lessons early = fewer mistakes later)
- Be intellectually competitive
- Make good decisions even with incomplete information
- Trust your intuition
- Do not make small investments (choose wise options that really justify the time + effort + risk)
Steinhardt also noted that the three qualities of a good trader include the chronic inability to simply accept things at face value, continually feeling unsettled, and the all-important trait of humility.
“A good investment is a particular balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.”
How the Sharesies auto-invest feature works
As mentioned, the new auto-invest feature of the Sharesies platform is very much like what you think it is. Basically, it’s a simple way for you to sit back, relax, and automate your long-term investing strategy. You can’t quite invest in your entire portfolio right now, but a selection of ETFs are on offer. You just need to select the amount and the frequency you want to invest in this order.
The two pre-determined orders include the ‘responsible order’ and the ‘global order’, each featuring a mix of ETFs.
The first highlights the importance of investing in companies that support the planet’s transition to renewable energy, or excludes companies involved in gambling, weapons and tobacco. Who says investing can’t focus on more than returns?
The latter is all about going around the world and supporting listed companies in some of the most developed markets in the world. What’s the benefit of going global, you might be wondering? A global order like this could help you build a global portfolio that is less exposed to the ups and downs of individual countries and sectors.
Finally, if you want to have your finger on the pulse of all your holdings, why not create your own order? There are a range of ETFs to consider, and investing regularly with Auto Invest can help average out market ups and downs over time.
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Promotion T&Cs apply. $10 applies to new accounts only. T&Cs and fees apply for use of the platform provided by Sharesies Limited. This article is sponsored by and promotion is provided by Sharesies AU Pty Limited, as an authorised representative of Sanlam Private Wealth Pty Limited (AFSL No. 337927). All investing involves risk.