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Ignore the Market 99% of the Time

The market only matters when you enter or exit a position — the rest of the time, it should be ignored. If you approach buying stocks like buying a business, you’ll want to hold onto them as long as the fundamentals are strong. During the time you hold an investment, there will be spots where you could sell for a large profit and others where you’re holding an unrealized loss. This is the nature of market volatility.

Warren Buffett: “Trying to time the market” is the #1 mistake to avoid:

The reasons for selling a stock are numerous, but a value investor should be as slow to sell as he or she is to buy. When you sell an investment, you expose your portfolio to capital gains and usually have to sell a loser to balance it out. Both of these sales come with transaction costs that make the loss deeper and the gain smaller. By holding investments with unrealized gains for a long time, you forestall capital gains on your portfolio. The longer you avoid capital gains and transaction costs, the more you benefit from compounding.

“People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake,” says Buffett.

“I do not know of anybody who had done market timing successfully. I don’t even know anybody who knows anybody who has done it successfully and consistently.” –John Bogle

After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: “Buy and hold.”

 

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