Investing in the Stock Market? Thinking in Generational Terms Will Do Wonders For Your Portfolio
Because successful investing takes time, discipline and patience.
Warren Buffett is arguably one of the best investors in the world.
From 1965 to 2023, he generated annual returns of close to 20% for his company’s shareholders.
If you had invested just $1,000 in his firm, Berkshire Hathaway, in 1965, you would be sitting on a cool $35.5 million at the end of last year.
Buffett’s patience in the stock market is one of the key reasons for his incredible return.
He is well-known for holding his stocks for the long run. In fact, he once famously remarked that his favourite holding period in stocks is “forever”.
Yes, Buffett has sold shares, but it is the thinking behind his quote that matters.
When you have a long time horizon when investing, it will help you to focus on the things that matter (hint: stock prices are not one of them).
The following is one of Buffett’s well-known quotes:
“Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
It requires a considerable amount of time for any business to do well, similar to how “Rome wasn’t built in a day”.
If we have an “investing” time frame of just one month, we would only be looking at stock price fluctuations alone, and this will be to the detriment of our portfolio.
The daily fluctuation in stock prices will not do any good for our psychological health as well.
However, if our investing time frame is measured in decades or even generations, we will be inclined to think about the things that matter: the long-term prospects of a business, the leaders behind a company, the value of a business, and so on.
So the next time you’re looking at investing in a stock or low-cost index fund, think in terms of years, decades, or generations, and not days, weeks, or months. It’s the mindset that makes a whole lot of difference.