You don’t have to watch the paint dry in investing.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take your money and go to Las Vegas.” - Warren Buffett
What is commonly shared in investing, is that one needs to be patient and be able to watch the paint dry. On the flip side, I disagree. One does not need to watch the paint dry.
In investing, price volatility is desired when prices go up, but it is not desired when prices go down.
Yet, price volatility is the admission price we have to pay in long-term investing.
We just have to accept that there are going to be frequent price declines from time to time.
We never know for sure for future price declines, when it will occur, how much and how fast. But we can have a rough sense historically of how often and how much stock markets tend to decline when it occurs.
Let’s learn from the kids in the famous marshmallow test done decades ago, where kids who had the willpower to forego eating one marshmallow right away, in exchange for two marshmallows ten minutes later.
The kids that forego eating the marshmallow early on, apparently went on later to do better in life, having better grades, careers, and earned more. Thus the study was widely interpreted that those can look ahead and delay gratification, tend to make better decisions than those who focus on the short run.
However Morgan Housel in his latest podcast “The Long Run Is Just A Collection of Short Runs” brought this important overlooked insight which made so much sense.
We know children just cannot sit still. Instead of sitting still for 10 minutes, they distracted themselves, they sing songs, played with their shoes, told others stories, hid under the desk, and did jumping jacks.
“While the paint is drying, one can do something to keep themselves distracted and occupied in the meantime. One does not need to watch the paint dry.” - Eugene Ng
Instead of watching the paint dry as investors should, forcing ourselves to see red when our stocks and portfolio values decline, and getting us to experience every inch of emotional and psychological pain continuously is unnecessary.
Conversely I do things to distract myself and keep me occupied. I exercise, I listen to podcasts, I read, I meditate, I write, I reflect, I journal, I meet more people, I stay away from things like constantly checking the prices declines or how much I am losing in the portfolio, that would pull me back to seeing that red that will cause me to make some stupid decision that I would mostly likely regret.
Instead divert your attention away from the things that will make you do something too tempting to resist. Don’t go head on, you might just end up doing something stupid when you watch the paint dry. Instead, go and do something else to occupy and distract yourself from it.
There are many wonderful things in life to do, go and discover them.
02 June 2024 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co
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