“The stock market is a tool for moving money from those who are patient to those who aren’t.” – Warren Buffett
A recent study highlighted by the median investor reveals that many people spend merely six minutes researching before buying a stock.
This trend explains why the average hold period for stocks has dropped dramatically—from about 8-10 years in the 1950s and 1960s to just a few months today.
If you aren’t well-informed about what you own, it makes it hard to hold onto it for long unless you strike it rich quickly.
This short-sighted approach really contrasts with Warren Buffett, who stepped down as CEO of Berkshire Hathaway at the age of 94 just last weekend.
Buffett’s impressive tenure spans a backdrop of stock prices declining by an average of 19.9% annually over more than six decades.
His investment history includes acquiring shares in American Express in 1964, GEICO in 1976, and Coca-Cola since 1988.
In my own investment journey, I’ve realized I won’t become a stock picker like Buffett, but I’ve developed a keen interest in his philosophy around long-term investing.
At a recent meeting, he remarked, “No one knows what the market is going to do next week, or next month, or even tomorrow. It’s easy to discuss, but ultimately it’s not worth it.”
I get why people focus on short-term outcomes—they’re often entertaining to discuss. Still, Buffett is right; most essential investment principles remain unchanged over time.
He’s been saying this for years.
In fact, I’ve been diving into a book that compiles 30 years of insights from Buffett’s annual shareholder meetings.
A notable excerpt from a 1994 conference reads:
He purchased his first stock in April 1942 at just 11 years old. The situation during World War II wasn’t looking great. The U.S. was struggling in the Pacific. I’m not certain if that influenced my decision to buy 3 shares, but just think about everything that has happened since—nuclear weapons, significant wars, presidential resignations, periods of inflation… It seems senseless to give up on what you excel at just to speculate on macro events.
If you’re investing with a time frame of decades, you will inevitably face tough periods. That’s just life, especially in long-term investing.
I appreciated his thoughts on risk during that same shareholder meeting:
Risk is about the potential for harm or injury. In that sense, it’s inherently tied to how long you hold your assets.
You can’t provide sound advice without understanding someone’s risk tolerance and time frame. Lengthening your investment period doesn’t guarantee outcomes—there can still be disappointing results over 10 to 20 years.
But the longer you stay in the game, the better your chances of success.
The unpredictability of the market makes short-term wins challenging.
Buffett once explained compound interest in 1999 using a snowman analogy:
Compound interest is like building a snowman on sticky snow. The key is to have a long slope to work with, which could mean living either to a very old age or starting young.
Sure, thinking and acting for the long haul might be simpler than it sounds.
Buffett’s talks at the 2020 Annual Meeting about the psychology behind buying and holding stocks were quite illuminating:
I don’t suggest buying stocks today, tomorrow, next week, or even next month. It completely depends on your individual situation. You should really only consider buying shares if you plan to hold them for a long time, and be financially and mentally prepared to resist impulsive reactions. No one can predict the perfect buying moment.
If you struggle with the psychological aspects of investing, it might be wise to avoid owning stock altogether, as you may end up buying and selling at the wrong times.
Buffett seems like an algorithm with his logical approach, but it’s his temperament that has allowed him to navigate complexities over the years. Back in 2002, he stressed the value of rationality over raw intelligence:
You don’t need a high IQ. What’s crucial is your temperament. That can be innate, acquired, or developed through experiences. You have to be realistic about your capabilities. Understand what you don’t know, and don’t get too caught up in it. Interest in money can drive investment success, but greed introduces disaster by overshadowing rational thought.
Long-term investing is straightforward yet often challenging.
Michael and I had an enlightening conversation with Morris about his new book on Buffett and the essence of enduring investment strategies:
Read more:
My Favorite Warren Buffett Shareholder Letter
