You already know this, but investing can be hard.
And the higher your ambition, the harder it becomes.
At a base level, investing is working hard, spending less than you earn, and socking the surplus away.
Simple? Sure. But not easy.
We live in a consumer society. There’s always something else to buy.
There are the Jones’ to be kept up with.
An endless stream of marketing on telly, radio and online.
Instagram influencers to envy (and, they hope, to copy).
The kids want stuff. We want stuff.
And marketers specialise in making us want stuff.
(If Toyota is reading this, I’d love a brand new 79 Series LandCruiser, please. You know, just for research purposes.)
I don’t need a LandCruiser (despite what I tell my wife).
Our Hilux is perfectly capable (and probably more comfortable).
But I want one.
What the economists refer to as ‘delaying consumption’ isn’t easy.
And of course, the money I’d use to buy one is far, far better off invested, instead.
So that’s what I do.
Simple. But not easy.
But investing gets harder from there.
See, once you’ve saved a couple of bob, you need to work out what to do with it.
The simplest option is to just invest it in a market-matching low-cost exchange-traded fund (ETF).
But even that’s not easy.
Some years, you’ll lose money.
You work hard, invest regularly, keep costs low, and still end some years with less money than you had when you started.
That’s hard to stomach.
And hard to stick to.
But, of course, we have to.
Because, over time, the stock market has bad years, but more good years.
And the good years have added more than the bad years have taken away.
So, it makes sense to just keep going.
Again, simple. But not easy.
Let’s amp it up again.
Let’s say you want to try to do better than average.
You need to try to build a portfolio of individual companies that you think are likely to be market-beating.
And you know what?
You’ll be wrong, sometimes.
Some companies will just be duds.
Others will zig when the market zags.
And you won’t know, at the time, which is which.
So you do your research, carefully select your companies, and thoughtfully build your portfolio… knowing the whole time that you could just be dead wrong, but hoping you won’t be.
Simple, but not easy.
This time, it’s harder because of the basic maths. Everyone else who is picking stocks is trying to do precisely the same thing you are.
But, averages being averages, someone is going to lose for every person who has a win.
If the average is 10% and you manage to get 12%, someone else is getting 8%
(I know, fellow maths nerds… the weight of money means it’s not quite that simple, but just know that I know, and let’s move on, huh?)
And then there’s the impact of fees and taxes.
Don’t get me wrong – the endeavour of ‘stock picking’ can be truly worthwhile for those who get it right. A bloke called Buffett has done pretty well at it, over the years.
But, well, it can be hard. And not for everyone.
So, wondering why I’m telling you all this?
A couple of reasons.
First, I want you to know the game you’re playing, and to either help you mentally prepare, or to encourage you to play a different game. If you’re not cut out for stock picking – you don’t have the stomach for volatility, or the time and inclination to pick your own companies – then a low-cost, broad, index-based ETF is a wonderful option for many people.
But second, to then think about how much harder it would be if you (perhaps unwittingly) ratcheted up the degree of difficulty even further.
Imagine all of the above being true, and then trying to time the market on top of that?
Imagine trying to be a short–term trader, basing your buying and selling on what you think other people are thinking, and going to do?
I mean, it’s hard enough to work out whether today’s Woolworths Group Ltd (ASX: WOW) share price, for example, fairly values that business’ long term cash flows.
But imagine trying to guess what other traders might think about Woolies in a day, a week, a month or a year.
Will they be optimistic or pessimistic about the market next March?
Will they be chasing dividends or growth at that point?
Will they like Woolies’ next strategy update? (No, I’m not asking whether that strategy will be the right one… I’m asking how people will feel about the announcement itself!)
Doesn’t that sound like a bridge too far, difficulty-wise?
Now think about some of the high flyers (and huge losers) of the past few months.
It’s easy, in hindsight, to ascribe reasons to the things that happened.
But how many people truly expected them, before they happened?
And before you give yourself too much of a wrap, remember that if everyone knew those things, the share price would already have priced those things in!
Now let me ask you the most important question:
If you knew that, for example, the ASX would turn $10,000 into $160,000 between 1991 and 2021, would you have wasted time trying to ‘time the market’ or trade in and out, knowing that you risked making even less if you got the trades wrong?
Actually, I’ll add another, similar question:
If you knew Amazon.com, Inc. (NASDAQ: AMZN) (I own shares, for the record) was going to rise from $3 to over $2,000 over the first 25-odd years of its life as a public company, would you have worried about the 20-odd times the company’s shares fell 50% during the journey?
Of course those are easy answers in hindsight.
But doesn’t it make the overtrading and stress look, well, a little pointless?
And worse, a waste of time and effort?
No, not every company will be Amazon. And no, I can’t promise the ASX will deliver the same result in the next 30 years as it did in the last 30.
But trying to trade in and out of shares for a few percentage points seems like a pretty tough way to make a quid, doesn’t it?
And worrying about short-term volatility in either case feels a little silly, no?
There will be some people reading this, who disagree violently.
They want to watch their portfolios, trading in and out of positions regularly.
Good luck to them.
And I mean that both sincerely and as a warning.
I don’t wish anyone ill, financially or otherwise.
But I reckon they’re up against it.
Riding the waves of market volatility isn’t much fun.
But I reckon it’s the ‘ticket to the dance’ of long term wealth creation – annoying, sometimes frightening, but the occasional storms we have to sail through to get to our destination.
I don’t know of a better way to get there. But I do reckon that risking disaster to try to get there slightly faster or slightly earlier is a bad bet.
Fool on!
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Scott Phillips has positions in Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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