Personal Investment Reflection
5 Reasons Why Having The Long-Term View is Vital in Stock Investing
Chris Lee Susanto, Editor in Chief at Re-ThinkWealth
23 March 2018
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” – Warren Buffett
“The single greatest edge an investor can have is a long-term orientation.” – Seth Klarman
The above two quotes are more profound than it looks. Both of them supports the fact that we need to have long-term thinking as stock investors.
Reason #1: If we try to predict which direction the stock price is going to move over the next few weeks or months, that endeavor would most likely end in despair. Why? Think black swan events and think the irrationality of humans that will swing the stock prices up and down in the short term.
Reason #2: Lessening of buying and selling equals to lesser cost of investing through the commission we pay to our broker/platform for executing our buy and sell trade.
Reason #3: A stock equals to a part ownership in a company. And having a long-term mindset complements with the truth that when we buy stocks, we are essentially buying a part ownership in the business. So when we think long-term, we will not be too influenced by the short-term price fluctuations.
Reason #4: Echoing reason #3, price is what we pay and value is what we get. Price and value can diverge over a long period of time. And one being right may still lose money in the stock market – as long as the market never realizes the true value of the business and reflect it in the stock price. So having a long-term mindset teaches us to be patient because price and value will take time to converge – meanwhile, do not be too affected by short-term price movements – as long as the business value is still intact.
Reason #5: Compounding. Warren Buffett often said that there are 3 reasons why he got so rich: being able to live in America, good genes so that he can live long and lastly compound interest. Thinking long-term help us to see that the goal for all of us is truly leveraging on compound interest in order to be rich. Remember, 99% of Warren Buffett’s net worth is achieved after his 50th birthday. Think about that for a second.
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