Want to invest better this year? Start here

Well, we woke up yesterday to a new, blank page on the calendar.

We do every morning, of course, but due to the way we organise our measurement and acknowledgement of time, this page comes with an updated year.

I’ve written before about the arbitrary nature of our 365-day calendar, and also the understandable – but often unhelpful – nature of measuring things over that sort of timeframe.

To our ancestors, and to the primary producers today, an understanding of seasonal cycles is vital, of course.

But for the rest of us, using one year as the benchmark for anything is a little… quaint, if not harmful.

Especially in investing.

Why is 365 days the right yardstick for measuring investment performance? What natural law do we expect share prices to follow, just because we’ve returned to the same place in our solar orbit?

(By the way, many people reading will be trying to justify that reality with a range of different arguments, but I suspect almost all of them will be a version of simply defending the status quo, because that’s what we’re used to, and comfortable with. Humans really don’t like our preconceptions challenged, or our worldviews shaken.)

I mean, if you’re investing in an agricultural company, maybe you can justify using the seasonal calendar to assess the business. But then, as we all know, the vagaries of weather (even putting aside long term climate changes) mean that year-to-year profitability can rely more on changes in rainfall than how the business is run.

And even if we could adjust for those things, that’s the company itself. Overlay that with share price movements – in the short term impacted more by sentiment than business fundamentals – and we’re back to shaking our heads at the arbitrariness of the solar calendar.

Instead, each of us should be making new investments, and assessing our current investments, by asking over what timeframe we can reasonably expect to assess success.

Is BHP Group Ltd (ASX: BHP) really going to be a meaningfully different company in 12 months? Is Woolworths Group Ltd (ASX: WOW)? Commonwealth Bank of Australia (ASX: CBA)?

And even if it is, should we really expect the market to perfectly reflect those changes in the companies’ share prices?

I hope you’ll agree the answer is a resounding ‘no’.

The same goes for the stock market as a whole.

So, a reminder of Ben Graham’s lesson to the (newly-retired, as of yesterday morning) Warren Buffett:

In the short term, the market is a voting machine, measuring sentiments like greed, fear, excitement, despondency, hype and hopelessness.

In the long term, the market is a weighing machine, tending to give full value to the underpinnings of the businesses themselves: their ability to attract customers, retain customers, and do so at prices that allow them to keep some of the proceeds for the benefit of shareholders.

It’s why ’12 month price targets’ are complete nonsense. No-one knows what other investors and traders will think in a year’s time.

Back in April of 2024, did investors expect ‘Liberation Day’ tariffs to hit markets for six one year later, with the biggest daily fall since COVID?

Of course not.

And yet, our desire for some degree of certainty leads us to ignore the repeated past failings of short-term prognostication, and to hope – despite evidence to the contrary! – that maybe this time they’ll get it right.

So let me be crystal clear: I don’t know the future. Nor does anyone else.

And anyone who thinks they do is either lying to you, or to themselves, or both. And probably because they’re caught up in their own ego and hubris.

Instead, they’d be well advised to understand that some things are unknowable, and to make their peace with that.

My view?

The shorter the time period, the more likely that the share price is driven by feelings.

The longer the time period, the more likely that the share price is driven by business quality and prospects.

But back to the calendar. One of the features of a new year is the phenomenon of the New Year’s Resolution.

There’s no real difference between setting a goal on September 17, compared to January 1, other than that we are drawn to the fresh start. The clean page. The opportunity and possibility to begin anew.

And while I’m not generally a resolutions guy, I’m not going to pooh-pooh that idea, if it gives people a little extra impetus to reset and recommit to their goals.

(It occurs to me that the beginning of Spring might be a more appropriate time for new beginnings, but I’m probably not going to change decades of tradition!)

And so, in the spirit of resolutions – albeit not fresh ones – I’m going to do something I try otherwise not to do, and re-use some stuff I’ve posted here before, because it’s been reviewed and refined to something I think is a pretty good standard.

Years ago I wrote some New Year’s Resolutions that I hoped would be helpful for members of Motley Fool Share Advisor, the investment service I run. Soon after, some of the Motley Fool team helped me improve them, and they’ve stayed the same ever since.

You won’t find any blinding flashes of insight, here: there is no magic formula for getting rich quick.

Believe it or not, that’s good news. Because it means almost anyone can follow them, as long as you earn at least a modest wage.

The other thing? You might have to make some sacrifices, but the value of long-term compounding will almost certainly pay you back in spades.

And so, here are our 13 Foolish New Year’s Resolutions:

13 Foolish New Year’s Resolutions

1. I will live below my means — spending less than I earn.

2. I will save money into a rainy-day fund so I’m ready for what life might bring.

3. I will pay off my credit card debt, and then only spend what I can pay off within the interest free period each month.

4. I will regularly add to my investment account.

5. I will invest money I don’t need for at least 3-5 years to build my nest egg.

6. I will learn more about investing, taking control of my financial future.

7. I will invest in quality businesses, remembering that I’m buying a slice of the company, not just a code on a screen.

8. I will buy shares in a company with the intention of holding them for the long term.

9. I will sell when my investment thesis fails, the company is overvalued or I have a better idea.

10. I will avoid anchoring my decisions to the price I paid for my shares.

11. I will remember that the market can be moody and over-react, both on the upside and the downside.

12. I will expect volatility, and I won’t let it spook me into selling. Indeed, volatility can offer me great opportunities!

13. I will let the market offer me prices (be my servant), not dictate my mood or actions (be my master).

(Want a printable version? I’m glad you asked. Here it is!)

From all of us at The Motley Fool, we hope you have a wonderful, prosperous and safe 2026.

Fool on!

The post Want to invest better this year? Start here appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Woolworths Group. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.