The stock market constantly beckons action. Every day, prices move up and down, media headlines alternate between optimism and panic, and the feeling that you have to “do something” often arises. It is deeply rooted in human psychology to want to react to changes, even when there may be no real need. This phenomenon is usually called activity bias – our tendency to prefer action over passivity, even though in many cases passivity is what actually produces the best results.
In the world of sports, there is often talk of winning matches through patience and not abandoning both strategy and tactics, not rushing forward in panic but sticking to the game plan. In tennis, it is not about winning the most points, but about making fewer mistakes than your opponent. Many matches are not decided by dazzling shots, but by the player who keeps the ball in play finally getting the point when the opponent misses (due to frustration, mistakes, impatience, etc.). In the stock market, it is the same – over the long term, it is not the one who chases the most quick wins who emerges victorious from the game, but the one who avoids the big mistakes and sticks to their strategy.
Warren Buffett has said that “Wall Street makes money on activity; you make money on inactivity.” It’s a reminder that stockbrokers, banks, and advisors often profit from our buying and selling—but that our own wealth usually grows by holding on to our positions and letting time work for us.
Buffett once told Jeff Bezos in an interview that he is often told how strange it is that his investment principles seem so simple: buy quality companies at a reasonable price and hold them for a long time. Bezos wondered why more people didn’t do the same, to which Buffett replied that it was because “nobody wants to get rich slowly.” Therein lies the crux of the dilemma: the human psyche is impatient; we want to see quick results, we want to take action, we want to feel in control. However, investing is not about quick gratification – it is about letting time, compound interest and the companies’ own value-creating power do the work.
There is a strong resistance within us to “just sitting still,” but sitting still in the stock market is not the same as being passive in life in general. Rather, it is an active act to refrain from unfounded and hasty decisions. Not selling in panic when the market falls, not jumping on the next hyped stock just because the price has skyrocketed, not losing focus on the long-term strategy – all of this requires discipline. The biggest enemy is not the market, but our own restlessness. My best ally is also my worst enemy, namely myself.
We live in a time where information is more accessible than ever. The value of the portfolio can be checked 24/7 on your mobile phone, the news feed is updated every minute, social media is flooded with stock tips and opinions. It is easy to believe that those who know the most and follow the market the most intensively will also be the most successful. However, it is relatively often the opposite: excessive presence leads to anxiety, and anxiety leads to ill-considered decisions, and ill-considered decisions lead to capital destruction. Creating distance is therefore an important success factor.
One way to do this is to remind yourself of what you actually own. Behind every share is a company, with employees, products, customers and strategies. It is the companies’ profits, cash flows and long-term development that create value, not the day-to-day price movements. If you spend more time understanding the companies’ business models and less time staring at the share prices, you will be more likely to hold on to your investments through both ups and downs. Remember that a share is only a derivative of a company and the development of the former rarely correlates with the latter in the short term.
Investing for the long term does not mean that you should never act. Of course, there will be times when the portfolio should be adjusted, for example when a company has fundamentally changed or when you need to rebalance the risk level. However, this should be done infrequently, well-founded and based on the overall strategy and investment horizon; on objective, well-thought-out and good grounds, so to speak. The investor who changes strategy often or who lets emotions guide decisions, risks running in circles while the one who stays calm makes steady progress.
Investing is a journey where those who can be “steady as she goes” are ultimately rewarded. Patience, discipline and the ability to keep your distance are often more important than brilliant analysis and quick moves. Time is the most powerful force in the stock market – and it only works for those who let it do its job.
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