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Keep it simple – 99% of long-term investing is doing nothing

28 August 2023 Roné Swanepoel, Business Development Manager at Morningstar South Africa
Roné Swanepoel

Roné Swanepoel

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." — George Soros

Let’s start with a thought experiment. If you look back on your investment journey to date, and the various hot tips you received – either via the media reporting the latest market craze, or something as simple as a friend’s hot tip at a Saturday braai. How many times did you act and buy into these hot tips? How many times did it pay off? Are you possibly still invested in one of these stocks, sectors or funds? With the benefit of hindsight, are you happy you invested when you did?

Although these hot tips work out well for some, they are often handed out when the particular stock, fund or sector has already gained and reached its peak in popularity. It seldom occurs, as with all market timing, that investors receive this tip when the price is still low, enabling them to buy in at a reasonable price to realise a decent profit.

We make some of our worst decisions by paying too much attention to opinions about markets where many of the variables are either unimportant or unknowable when it comes to our investments.

As markets turn more volatile and create uncertainty - as we have seen in the last year – opinions become louder, the pressure in the market mounts and the headlines start jumping out at us begging us to try and time the market. Headlines like “Markets and the economy to face a meltdown in 2023”, "The best stocks to profit from the AI trade", "Market guru says his 'once in a decade' trade is upon us," or “Reasons why you should move all your money away from South Africa”. We must remember there are two sides to any coin.

When very persistent narratives are so visible, it becomes very difficult for investors to focus on anything else, and to ignore these narratives. We become gripped with the things we don’t know and it becomes increasingly difficult to pick a good mix of funds for your investment portfolio – and avoid making big changes to it. But you should. As Morgan Housel once wrote, “99% of long-term investing is doing nothing...”

The power of doing nothing
Over the long term the stock market rises in value. Corporations like making profits. Money must go somewhere and people like the returns they get in the stock market. Simple.

The one factor that remains constant is that to derive these positive returns, you have to be invested. Unfortunately, that involves staying invested through periods when markets go up and down. Why? Because no one can accurately and consistently time the market.

Although we know the stock market trends up over time, the graph is never linear and constantly punctuated by turbulence, rallies and dips as can be seen in the chart below showing the S&P 500 index since the 1940s.

Click here to read more...

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