The Key To Investing Is…
The single most important factor to achieving success in investing is time. The longer the time horizon you have, the greater the opportunity is to accumulate a fortune. Time is your best ally and friend in the investment world. Time will establish many compounding opportunities over an extended period to undoubtedly foster a personal net worth you can be proud of.
We all have heard the saying “Time is money” at some point in our lives. And yes there is a great deal of truth to that expression. Time creates the opportunity to earn money, and then have that money evolve into a greater value in the future. Opportunity cost is a major determinant for people not reaching a personal net worth they are happy with. Instead of using precious years to invest in a stock market that historically returns on average 7%, people stubbornly will desire tangible items that depreciate faster than they may even realize.
Strategies are not the most important piece. Skills will not make you an automatic millionaire. Cash abundance is not the leading source of investment success. Wall Street experience does not guarantee a thing. Patience is and will always be the most critical component to seeing the results you are looking for and the chance to amass a satisfying wealth. Patience is the difference between an investment going from negativity to springing towards a massive return.
It is quite common for investors to abandon an investment purely due to its mediocre gains or even losses so far. They want instant gratification so badly they do not give the investment a chance to blossom. The chase of overnight success does not happen in our personal careers, so why would you believe instant profits will occur?
It takes time for a legitimate investment to reach fruition, to reach its maximum return. We all believe in hard data over verbal or written explanations, so here is the numbers:
With the above chart, time is the critical element working in or against someone’s favor in building a million-dollar portfolio. The longer you have to invest, the stronger the smaller amounts of money will work for you.
It’s Okay to Wait on the Sideline
Believe it or not, the sideline is the place to be during certain market periods. You do not always have to make trades just because you have the cash on hand. There is no obligation set where you are required to invest 20% of your available cash each quarter. Be patient and wait for the right opportunities. Without even looking at your transaction history, I can be certain there is a trade that was done out of impulse. A trade that could have waited for the price to settle at a lower point versus a day which the price appeared attractive, but fluctuated on the response of news reports.
Market volatility is the most common time for investors to consider the prospects of buying or selling any stock. High volatility creates frenzy throughout the market that does not always present the right opportunities. Waiting out these times as a buy and hold investor is the beauty of the other side of the storm. Volatility is not going anywhere. For as long as there are large institutions, major economic changes, and emotional investors there will for sure be times of massive price movements.
For those investors who take beta into serious account for determination of a worthy stock – stop it. Beta is worthless in the outcome of long-term investing. It measures how unstable or volatile a stock currently is. Its current evaluation is exactly why it is a waste of time to consider beta an important metric for trading a stock. It is really a measure created by market analysts to pin an “expert” assessment on the current state of the stock and how it may perform in the near future.
Researching strategies for when the best time is to buy a stock will show the price to earnings ratio. The lower the price to earnings ratio, the more undervalued the stock would be considered. However, the barometer of whether a company is undervalued is a piece of the puzzle, not the singular piece. The core financials have to prove strong before the price to earnings ratio is even considered. And on the reverse, just because a company is showing a price to earnings ratio of greater than 10 does not eliminate it from being a powerful long-term player in your portfolio.
In order to get off the sideline there must be a list of elements checked off to ultimately deem it an investable opportunity. This can be price, profitability, earnings, growth, debt to equity ratio, dividends, assets, book value, return on investor’s capital, or much more. There should not be exceptions to the criteria you are seeking just to join the party. How much fun is the party when you arrive, but soon after things begin to unravel and the mood of the party drops immensely? This is the same with buying a stock that does not fit your truly desired criteria. It will seem like a true match right after the purpose, but then the value will begin to slope downwards, and surely your mood will decline.
Just Wait, Wait, Wait, Then Pounce
The best moments come when we wait for the perfect time to act upon the opportunity. At least that is what the cliché expresses. But there is some truth to that. Waiting for the ideal window to open almost always returns the best results. This timeframe can be considered the sweet spot. In investing, the sweet spot is what will turn a good investment into a game changer.
Opportunities come and go more frequently than you may believe. If a price seems tempting today, it does not remove it from being more attractive tomorrow or next week. Avoid chasing prices, instead chase quality. A quality investment will always appreciate in value over time regardless of a small purchase price difference.
Without a doubt waiting on the sideline can get incredibly boring after a while, but the moment of losing money on an impulsive investment decision is far worse. Gaining small amounts of returns will always win over taking any losses. Remember it is the compounding that leads to amassing a strong fortune to be proud of.
While waiting, the balance set aside for trading should be growing as periodic cash deposits to your account are happening. This will allow for stronger buying power when the opportunity arises to acquire the ideal stock. Trading 10 shares may not make a big change in your portfolio, but 50 shares very well may. Be patient, be calculated, be savvy, and then be confident in your investment decisions.