If you take just one thing away from the next 1,000 words, make it the key to long-term wealth development: time in the market, not timing the market.
We’ve all heard the highlight reel stories from your mate’s mate. The lucky bastards who’ve somehow managed to land a 10 bagger in just a matter of days. They’ve bought low, sold high, and flog the story to death every time they’ve sunken too many beers at the local.
Is such an outcome possible? Yes. Sustainable? Not a chance in hell. Quite often, they’ve lost more than they’ve gained. You probably only ever hear about the winners, too – missing out on the stories like that guy who consistently deletes his weekly paycheque in the pokies every Friday on the promise of a win that rarely comes (if ever).
If an investment is a fundamentally good one, then theoretically, it’ll increase in value over time. Sure, short-term fluctuations happen every now and then. Your holdings might even show a downward trend for a decent chunk of time, but trust the process and invest with confidence.
You need to remember that time is on your side. So is 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, introduced a new auto-invest feature that takes the stress out of the equation. You can now automatically top-up a range of different ETFs you choose, at the frequency and amount you want. But more on that later.
First, let’s take a look at the benefits of long-term wealth development with a handful of history’s greatest investing minds.
Benjamin Graham & 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 Grandfather of Value Investing. In Warren Buffett, you have The Intelligent Investor author’s greatest student – and a goddamn rockstar when it comes to playing the long game.
Informed by the principles of discipline, patience, and scoping out value – tangible value – wherever it may be as taught by Graham at Columbia Business School (and beyond), Buffett has transformed Berkshire Hathaway into one of the world’s largest financial services company by revenue; in addition to amassing a staggering ~US$112 billion net worth, which began as nothing more than $6,000 back when he was 15. Fun fact: over 99% of Buffett’s wealth was accumulated after his 50th birthday, according to Forbes.
According to Alice Schroeder – who penned The Snowball: Warren Buffett & The Business of Life – an integral component of Buffett’s investing philosophy can be attributed to how Graham personified the stock market as a temperamental, supremely irrational, and easily excitable character known as “Mr Market.”
Benjamin Graham would ask his students to picture Mr Market as their business partner, one who would frequently offer to sell their shares or buy your shares. The beauty of it, however, is that you can always decline whatever Mr Market offers, because they’ll always come back with something different. As Warren Buffett explained in his 1987 letter to Berkshire Hathaway shareholders:
“Mr Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.”
“Indeed, if you aren’t certain that you understand and can value your business far better than Mr Market, you don’t belong in the game. As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.’”
“In the short run, the market is a voting machine but in the long run it is a weighing machine.”Benjamin Graham
In the 1980s, Peter Lynch made a name for himself by managing the Fidelity Magellan Fund. During his tenure at what was then among the most prolific and successful mutual funds, the assets being handled by the talented Mr Lynch grew from US$18 million to well over US$14 billion. Even more impressively, he outperformed the S&P500 Index in 11 of his 13 years as FMF’s head honcho, recording average annual returns of 29.2%.
How did he do it?
Peter Lynch had a few golden rules when it came to investing, which you’ll find variations upon variations of online. Here are some of his most pertinent pillars of investing, particularly in the long term:
- Understand what you’re investing in
- Avoid whatever “you can’t illustrate with a crayon”
- Avoid trying to predict the future
- Avoid the long shots
- Good management is a key indicator of a good business
- Value having a stomach as much as having the brainpower to invest
- Expect (some) losses
- Beat the market by 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 most importantly… be patient
“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.”Peter Lynch
Modern investing culture might be fraught with chest-beating and Belfort-isms, but Michael Steinhardt is definitive proof you don’t need to be the loudest person in the room to be an investing success.
Steinhardt’s most notable achievement rivals Lynch’s own track record – 24% compound average annual returns for almost three decades straight. For reference, that’s more than double what the S&P500 was clocking throughout the same period.
Now granted, Michael Steinhardt wasn’t strictly a long-term investor, but what can we learn from him? Some tips Steiny outlined in his book are as follows:
- Make all your mistakes early in life (tough lessons early on = fewer errors later)
- Be intellectually competitive
- Make good decisions even with incomplete information
- Trust your intuition
- Don’t make small investments (pick sound options that actually justify the time + effort + risk)
Steinhardt has also noted the three qualities of a good trader include the chronic inability to simply accept things at face value, feeling continuously unsettled, as well as the all-important trait of humility.
“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognise when you have made a mistake.”Michael Steinhardt
How Sharesies’ auto-invest feature works
As mentioned, the Sharesies platform’s new auto-invest feature sounds a lot 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. At present, you can’t quite invest in your entire portfolio, but a selection of ETFs are on offer – just select the amount and frequency you want to invest into that order.
The two predetermined orders include the ‘Responsible Order’ and the ‘Global Order,’ each featuring a mix of ETFs.
The former emphasises the importance of investing in companies that are supporting the planet’s transition to renewable energy, or excluding companies involved with gambling, weapons, and tobacco. Who said investing couldn’t focus on more than just returns?
The latter is all about going worldwide and backing companies that are listed on exchanges in some of the world’s most developed markets. What’s the benefit of going global, you may ask? A global order such as this one could help you build a global portfolio with less exposure to the ups and downs of individual countries and sectors.
Finally, if you’re all about having your finger on the pulse of all of your holdings, why not create your own order? There are a range of ETFs for you to consider, and investing regularly with auto-invest can assist in averaging out the ups and downs of the market over time.
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.