Key Takeaway:
The key to successful investing is not to engage in frequent trading, but rather to hold investments patiently over the long term.
Detailed Explanation:
Conventional Wisdom:
Conventional wisdom encourages active investing, where investors frequently buy and sell stocks to capitalize on market fluctuations. This approach assumes that investors can identify undervalued stocks and sell them once they reach a certain price target.
Howard Marks’ Perspective:
Howard Marks argues against this conventional wisdom. He believes that investors waste time and effort on frequent trading, and that it often leads to poor results. Instead, he advocates for a more passive approach called “buy and hold.”
Benefits of Buy and Hold:
Marks argues that the majority of investment returns are generated from the long-term growth of a company’s earnings. By holding investments over the long term, investors can:
- Participate in the compound growth of earnings
- Avoid the costs and risks associated with frequent trading
- Reduce emotional decision-making
Don’t Make Money on Trading:
Marks emphasizes that investors don’t make money on what they buy and sell; they make money on what they hold. This means that short-term market fluctuations are less important than the long-term potential of an investment.
Conclusion:
Instead of actively trading stocks, Marks advises investors to adopt a “sit there” mindset. By patiently holding quality investments over the long term, investors can maximize their potential returns and minimize their risks.
