Investing can often feel way more complicated than it actually needs to be. Constant noise and headlines cause markets to move up and down every day, which can start to make it feel like you always need to be doing something to stay ahead.
But the reality is, successful investing is usually much simpler, as long as you can stay patient and disciplined.
Investing should be simple because, at its core, it’s all about taking a long-term approach, finding high-quality businesses you believe in and have confidence in, and then holding them for years while they continue to generate profits and expand their operations.
But while understanding the importance of a disciplined, long-term approach is essential, the hard part is often actually sticking to it.
Investing seems like it’s all about picking the best stocks, and that’s obviously a crucial component. However, it’s also largely about managing your emotions and having the discipline to stay patient and consistent, especially when markets get volatile.
That’s why investing often ends up being much more difficult than it needs to be. Furthermore, looking back at a stock’s chart, whether it’s months or years later, everything feels obvious. It feels like you should have known when to buy, when to sell, and when to hold.
But in the moment, when prices are moving and uncertainty is high, it’s much more difficult to step back and look at the big picture. And a lot of times, the smartest thing you can actually do in these environments is nothing, and stick to your long-term strategy.
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What does long-term investing actually mean?
Long-term investing really is as simple as it sounds. You buy great companies and hold them for years.
Predicting where the market or a single stock will go over a day, a week, a month or even a year can be very difficult, because short-term headwinds can impact stocks for weeks or months.
However, identifying a high-quality company that has the potential to continue dominating in its industry and growing for years is actually much easier.
That’s why we buy stocks to hold for the long haul. It reduces the risk of short-term volatility. And when you own companies you truly believe in, you have the confidence to hold those stocks through even the most volatile environments.
For example, look at Dollarama (TSX: DOL), easily one of the best long-term growth stocks on the TSX.
The company has a simple business model, strong margins, and a long runway for expansion, which has allowed it to deliver incredible returns for investors. In fact, investors who have held Dollarama for the last decade have earned a total return of more than 560%.
But that doesn’t mean it hasn’t had periods where it sold off or underperformed along with the market. As you can see from its chart, it has multiple times.
Sometimes those sell-offs were due to company-specific concerns, such as a quarter when earnings missed expectations, other times it was due to macroeconomic headwinds that dragged down stocks across the broader market.
But over the long haul, nothing was wrong with Dollarama, and the business kept executing, and the stock continued to compound.
When doing nothing is actually the smartest move
As I said before, understanding the importance of long-term investing is one thing. Actually sticking to it when markets start to get volatile is another.
That’s why the best way to manage your emotions is to focus on what actually matters, which is the quality of the businesses you own.
The more confident you are in the companies you’ve invested in, the easier it becomes to hold them when markets get volatile and the less likely you are to panic when the stock drops suddenly.
Another way to help manage your emotions and stick to your long-term strategy is to simply stop checking your portfolio constantly.
That doesn’t mean ignore everything. You still want to keep up to date with your companies and understand what’s happening in the economy, but avoid looking at stock prices all day long. Because the more you look, often the more you’re going to feel like you need to react. And most of the time, doing nothing and staying patient is the smartest move you can make.
