I have started reading a book titled “100 to 1 in the Stock Market”, in which the author Thomas Phelps talks about how investors can make more of their investment opportunities.
The book starts with a story of five poor Arabs who are woken up one night by an angel.
“Each of you can have one wish,” the angel says.
“Give me a donkey,” asks the first Arab, and he is granted his wish.
Thinking how little the first Arab asked, the second one asks for ten donkeys and gets them.
The third asks for even more – a caravan with a hundred camels, a hundred donkeys, tents, rugs, food, wine, and servants – and gets them from the angel.
The fourth Arab, who had heard the previous three’s wishes, asks for even more. “Make me a king,” he commands the angel who bestows him with a kingdom.
Now, the fifth Arab, having seen his companions ask for too little, resolves to make no such mistake.
“Make me Allah,” he orders the angel.
In a flash, he finds himself naked on the sand, covered with leprous sores.
The moral of this story, as Phelps suggests, is that those of us who ask little of life get little. Those who ask much get much. Those who ask too much get nothing.
“But strange as it may seem,” Phelps writes, “human greed being what it is, most of us make the mistake of asking for one donkey. Few ask too much.”
This stands so true when it comes to investing in the stock market.
An investor, in general, would rather sell a stock after it has gained 20-30% to avoid the regret of losing these gains. He rarely thinks he has a chance to make a fortune out of his stock market investments.
So the idea is to make a quick 20-30% return on a stock, sell it, and get onto another quick riser.
This very investor, when he sees a few others build wealth from the stock market, would soothe his ego by accusing them of having “insider information” or being “plain lucky”.
He would also say, “These success stories are now history. No one can do it now.”
Even when fate puts a great idea in this investor’s hands (or let me say, in his portfolio), he tends to throw it away.
“You’ll never go broke taking a profit” is the mantra he lives by.
But then, as Phelps writes and later proves in his book…
Fortunes are made by buying right and holding on.
Yes, that’s the secret!
Your broker won’t tell you this because his business would close down if you just buy right and sit tight.
You will also not hear this on business channels whose ultimate aim is to make their anchors and guests appear smart because that is what gets them the highest TRPs.
But this simple secret – buy right and hold on – is there for the taking for ages.
“Buy a business, don’t rent stocks,” Warren Buffett has been advising for years. And then he adds, “An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”
If you seriously want to build wealth from the stock market over the long run, take this advice from Phelps to your heart – Buy right and hold on.
Or, after having bought a quality business for your portfolio, remember what the former American president Ronald Reagan once said – “Don’t just do something, stand there!”
Phelps concludes the first chapter of his book with this powerful thought from George F. Baker…
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.”
Patience is the rarest of the three, but it pays off in the long run.
That’s how fortunes are made in the stock market.