The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life
This is the stock price chart of Titan Company over the past 16 years (2007-2023).
Our brain that works with perfection in hindsight would lead us to believe that buying and holding the stock during these 16 years would have been an easy choice for anyone who did it. After all, the only thing the investor would have done during these 16 years was, well, nothing.
I wish investing was that easy.
Of course, the idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who do not practice it appreciate that this works with most high-quality businesses, as history has proven time and again.
But then, it is important to understand that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.
You, for instance, would have fight the –
- Stock ticker tape that makes its presence felt every minute, day, week, month…and sometimes indicating that the price is down more than 10% or 20% in the month gone by,
- Fear of losing more after a crash in the stock’s price and to cash in on whatever profits that remain,
- Brickbats from fellow investors who are raking in quicker gains from hot stocks,
- Temptations to “book profits” after sharp run-ups in the stock’s price,
- Thoughts of selling and reinvesting in other stocks that are rising faster,
- Thoughts of selling because experts are saying the stock has become “overpriced”,
- Advice on selling from the financial advisor to “rebalance” your portfolio,
- Thoughts of selling after making the first 2x, or 5x, or 10x,
- News flows that suggest the next few quarters are going to be bad for the business, etc.
In short, the act of ‘not acting’ on a longer timeframe is made up of hundreds of small decisions that lead to the ultimate decision to ‘not act.’
This is one great lesson for an investor who believes in the power of long-term investing but also believes that it is often an easy decision to buy and hold high-quality businesses.
It is not.
Businesses change from time to time, and so do emotions, and so does the behaviour of other investors around us, and so do conditions in the stock market and of our portfolios. And that’s why sitting on stocks – the ones that remain high quality – is not as simple as it sounds. And that’s why patience is one of the most important yet difficult skills one must cultivate while investing in the stock market.
Buddhist teacher Pema Chödrön writes –
Patience is not learned in safety. It is not learned when everything is harmonious and going well.
When everything is smooth sailing, who needs patience? If you stay in your room with the door locked and the curtains drawn, everything may seem harmonious, but the minute anything doesn’t go your way, you blow up. There is no cultivation of patience when your pattern is to just try to seek harmony and smooth everything out.
Patience implies willingness to be alive rather than trying to seek harmony.
George Baker makes a powerful remark which Thomas Phelps quotes in his book 100 to 1 in the Stock Market –
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, and is not an easy skill to develop however easy experienced investors or advisors may make it sound. But if developed and practiced well, it pays off well in the long run. That’s how fortunes are made in the stock market.
Just be prepared for the grind.
And stick with quality until it remains quality. Because if it is not quality, buy-and-hold won’t help you create wealth, but destroy it…
That’s about it from me for today.
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