The story of the tortoise and the Hare is timeless. Slow and steady wins the race; still, no one listens. It’s too boring. Ever driven down a highway and see an impatient driver weave in and out of lanes; trying to go as fast as possible in heavy traffic? Let’s look at the pros and cons. Pros: You might get to your destination a little earlier, but do the math. A person traveling 30 miles driving 60 mph will get there in 30 minutes. A person speeding at 90 mph gets there in 20 minutes. You save 10 minutes, but at what cost? You might get pulled over by the cops. That will cost you money and time. You will be accelerating and decelerating heavily, which will wear out your car and increase you gas and maintenance bill. Or worse; you could get into an accident and increase your chance of death…..for 10 minutes. In my experience, staying in a lane that is flowing smoothly often beats the lane changers.
How does this pertain to investing? Many people mistake trading for investing and are in and out of stocks too often. There are many other similarities. If you buy and hold for at least a year, your blood pressure will probably be lower, when you sell your position it will be taxed at a lower rate, and you save money on transaction costs. Also, if the average return on the stock market is 10%, and you happen to be out of the market, you might miss out on that upside. The lesson is; boring and calculable is good. Frenetic and exciting is bad in traffic and in the markets.