Sloth is a great virtue in stock investment

Table of Contents

Buffet’s view in shareholder letters

Buffett is a big advocate of inaction. In his 1996 letter, he explains why: almost every investor in the markets is better served by buying a few reliable stocks and holding on to them long-term rather than trying to time their buying and selling with market cycles.

“The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries,” he writes, “In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.”

“When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio… To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team,” he adds.

Buffett’s warning was a prescient one for retail investors who decided to take it. From 1997 to 2016, the average active stock investor only made about 4% returns annually, compared to 10% returns for the S&P 500 index as a whole. In other words, constantly buying and selling stock, and thinking that you can get an advantage from your instincts or analysis, has been proven to lead, in most cases, to smaller gains. And not just for your average retail investor.

“Lethargy bordering on sloth remains the cornerstone of our investment style,” Buffett wrote in his 1990 letter, and the difficulty of making any kind of money from buying and selling stocks is the very reason why. “Inactivity,” he adds, “strikes us an intelligent behavior.”

Investor’s biggest enemy is overtrading

In Sections 1-4 of my book “The Rules of Super Growth Stocks Investing“, pages 45-47, when discussing the stock turnover rate, I have listed in detail the major exchanges in the United States, Taiwan, and China for each era. The investor’s stock turnover ratio.

Most people will refute that the current transaction fees are already very low. The major online brokerages in the United States have reduced their fees to zero even three years ago, so it will not have any impact on investors.

This kind of view is extremely blind to the trees, because the turnover rate of holdings is too high, which will of course lead to short-term or hedging transactions.

In Section 4-2, page 198, of the book “The Rules of 10 Baggers“, I mentioned that in the two years from 2020 to 2021, the trading volume of Taiwan stocks was as high as NT$ 54 trillion. But lost NT$ 63 billion.

Why is this the case? Because doing so violates the fundamental principle that stock market investment can be profitable──holding stocks for a long haul.

Closing words

Carefully screen stocks that meet your investment principles, concentrate on investing, and rather than overuse. After buying, hold it for a long time, even during a bear market or crash, you should take advantage of this rare opportunity to increase your purchases and enter the market to pick up bargains. Don’t sell unless you have to — this is the only way for investors to accumulate assets that satisfy you in the stock market.

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