This might not be a popular view, but here goes.
I keep hearing the same thing from friends and family. Most of us don't use the one thing we have over the professionals.
Time.
Why professionals can't just wait
An active fund manager gets judged every quarter against a benchmark. Have a bad year and clients leave. So there's constant pressure to be seen doing something, even when the best move is to do nothing.
That isn't a flaw in the person. It's the job. Plenty of fund managers are careful and skilled. But the job rewards looking right in the short term.
We don't have that. Nobody to report to. No review meeting. If you bought a good company for a good reason, and that reason hasn't changed, you're allowed to just wait.
What Buffett actually did
Buffett is the usual example, though it's often told a bit wrong. He did measure himself against the market. Berkshire's letters compare its results with the S&P 500 every year.
What he never did was let a benchmark decide what he owned. He bought businesses he understood, held them for years, and didn't sell just because the price dipped.
Easy to say, though
Waiting is hard. The price drops. The headlines turn ugly. Someone you trust sells. And the reason you bought starts to feel like a long time ago.
Studies keep finding that investors tend to earn less than the funds they invest in, and a big part of it is when they buy and sell. We tend to act after the fear arrives, not before.
A friend of mine
A friend bought Australian tech stocks last year because of the AI theme. He's down over 20% now and not sleeping. He wants to sell and move to ETFs, which is what everyone seems to be telling people to do these days.
Then I read managers saying they're sitting in cash waiting for a correction. The same story is all over online forums, and some of the people I talk to echo it. It's a lot of noise when all you want is a good night's sleep.
I've got nothing against ETFs. They're a great tool for plenty of people.
What bothers me is that he never wrote down why he bought. So he can't tell if the idea is broken or it's just a bad patch.
I didn't tell him to sell or hold. I just asked what would have to happen for him to say "ok, I was wrong".
He might be right to sell. If a position keeps you awake at night, it may simply be too big or too risky for you, and that's a fair reason to change a plan. I'd just rather he decided that than panicked into it.
A theme isn't a thesis
"AI will be big" is a reason to start looking. It isn't a reason to hold, or to sell. A thesis is more specific, and you can write it in three lines:
- Why this company? What does it do well, and why should that last?
- What would prove me wrong? The facts that would make me sell, decided now while I'm calm.
- When will I check? A date, so I review the facts and not just the share price.
Then, when the price drops, you've got something to measure against. You can ask "has anything on my list changed?" instead of "do I feel scared?"
Waiting only works if you wrote down why you bought, and you check it honestly.
And if the reason is broken, selling is the patient thing to do.
That's part of why FolioTrack lets you record a thesis for every holding, with saved history, so you can look back at what you were thinking at the time. It won't tell you what to buy or when to sell. It just helps you see your own reasons clearly.
So, do you think retail investors waste the time advantage they have? What's harder for you, holding or selling?
— The FolioTrack Team
General information only. Not financial advice.