Have you ever had this experience? A few years ago, you clearly invested in a good company, but after holding it for less than a month and it rose 10%, you sold. The reason you sell after making a little money is not that you lack confidence in the company, but that at the moment you bought, you never intended to hold long term. So how can investing achieve long-term holding? Simple. You need to do the following three things.
First, when buying, don’t think about selling. Buffett said: If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes. Buying with the thought of selling in a few days to make a price difference is speculation, not investing. So what is investing? Duan Yongping put it this way: If a company were not listed, would you still buy it at the current price? If yes, that’s investing. Otherwise, it’s speculation. See? Do investing with the mindset of a non-listed company, and you’ll know that the money you make comes from the company. Only if the company makes money can you make money. For a company to make money, it needs long-term operation. A boss who truly wants to do business wouldn’t think about selling the company when starting it. So when you invest and buy, you shouldn’t always think about selling either. Why? Same reason: Buying a stock is buying a company!
Second, stay away from the market. Graham said: In the short run, the market is a voting machine. In the long run, it is a weighing machine. If you’re too close to the market, facing daily ups and downs and influenced by all kinds of market noise, it’s very hard to stay rational. Human nature’s instinct to seek advantage and avoid harm—such as herd mentality—will make you forget what you bought. You’ll subconsciously follow others. At the slightest sign of trouble, you’ll want to run, and before you know it, you’ve sold a good company. Naturally, you can’t achieve long-term investing.
Third, don’t borrow money to invest. Duan Yongping once bid for a lunch with Buffett, and Buffett told him the three most important things in investing: Don’t borrow money, don’t short, don’t do what you don’t understand. Why can’t you borrow money to invest? In Buffett’s letters to shareholders, he said it very clearly: Don’t risk the money you need in order to make money you don’t need. He gave an example: The management of Long-Term Capital Management were all elites of the world, highly educated, highly intelligent. Through investing, they had already made more money than they could spend in a lifetime. But to make even more money they didn’t need, they borrowed to invest. That’s not stupid—it’s really stupid. I’ve done this stupid thing too, paid a lot of tuition. Whenever I think of the eighth wonder of the world, the compounding effect, my intestines turn green with regret. I won’t do it again. Why? Because if investing uses leverage, you’ll unconsciously stare at the market. What are the consequences of being too close to the market? Remember point two?
How can investing achieve long-term investing? Just three points: When buying, don’t think about selling. Stay away from the market. Don’t borrow money to invest. These are all common sense. Simple? Yes. Easy? No.