These two forces, greed and fear, are the two forces that can drive the markets up and then drive the markets back down. If you trade frequently you'll eventually be subjected to both of these forces. As a consequence, some days you'll make money and some days you'll lose money. What these two forces won't do for you is help you hold on to your money. Those two forces hate stationary money.
Holding on to your money is the single most difficult skill an investor must learn if he's ever going to succeed at investing. In fact holding on to your money is almost impossible to do because the driving force needed to create wealth and to be a successful investor is patience. And most investors have never gotten acquainted with that driving force.
“He that can have patience can have what he will.”
Long time successful investors will tell you that they made most of their money sitting on their hands and doing nothing, or at least very little. That’s hard to believe for new investors but it's often the best advice anyone could give them. Simply do very little. Trading, and especially over trading, is the worst thing a new investor can do. But they all do it. It took me and most other investors a while to figure this out. When I finally figured it out I knew investing was the type of career/hobby I was destined for. It fits my personality perfectly.
But doing nothing is not natural for me or anyone else. To gain the skill and expertise of doing nothing often takes years and years of trial and error. And the only way you can learn it is to practice, practice, practice. In fact, as you get older and start to take naps during the day, it’s one of the sure signs that you're finally starting to perfect this advanced skill of doing nothing. And when you reach that point in your life you should take a moment and congratulate yourself. You’ve learned the art of patience, and you've finally attained that title of "natural born investor".
Patience is what makes an investor wealthy.
But what are the techniques and skills involved in mastering this illusive trait. Well, napping is one. Sitting on your hands is another. Having teenagers will surely teach you patience as well as try your patience. And sitting outside a restaurant with one of those little boxes waiting an hour or so for those little lights to swirl to let you know your table is ready will certainly help you learn patience. But patience will not get you to the promised land by itself.
There's more to it. Thinking and research are also involved. Thinking and research are important because they are the difficult processes by which an investor determines which company or companies they're interested in. Thinking is how an investor pulls together all the research, screening, and decision making processes into one specific action -- buying the right stock. I’ve discussed this earlier in a post entitled Finding the Right Stock and if you need to review it you can find it here. Thinking will also crystalize why you bought a particular stock when doubts enter your mind later on down the road. But patience is the key that puts it all together.
So if patience, thinking and research are not to your liking, then investing successfully in the stock market is probably not in your future. Perhaps you should look elsewhere. Maybe your future is in commodities. Maybe you should be recycling aluminum cans.
"Patience is bitter, but it's fruit is sweet."
Patience is also important because it keeps you out of a stock until the right time comes along and then it gets you into the right stock at the best possible price. Patience is what keeps you in a stock when the desire to sell is overwhelming but would result in disaster. Patience keeps you from overtrading and making your brokerage house even more richer than they already are.
Commissions are the bane of traders and overtrading just increases the number of commissions you’ll end up paying. In fact, brokerage houses prefer traders over investors because brokerage houses make their living charging commissions on trades. Traders end up paying a lot of commissions. Investors, on the other hand, stay in stocks and make a living by collecting dividends. They tend to hold their assets for a long time and watch their accounts and their wealth grow. Investors get rich through patience.
If you find and buy the right stock at the right price and it grows and expands, there’s really no reason to ever sell it. (Repeat that last sentence in your head a couple of more times.) Then just sit back and collect your dividends. And watch your wealth increase.
Live long and prosper.