Today I want to talk about my views on “Why average investors defy long-term investing?” Most people just parrot what others say without carefully considering this issue or giving it sufficient depth.
From a high-click post
A few months ago, after the post “Almost no long-term Taiwan investors“ was published, it received a very enthusiastic response. I apologize for not being able to list them here.
Most Taiwanese Responses
Most Common Reasons
The most common reasons I received from friends for why almost no Taiwanese investors engage in long-term investing were: “The Taiwanese stock market is shallow,” “There are almost no stocks in Taiwan worth long-term investment,” “Long-term investment in Taiwanese stocks almost always results in losses,” “It’s difficult to pick profitable stocks,” and “The stocks I bought haven’t risen much in the long run and have even resulted in losses.”
My View
What I want to say is:
- As Warren Buffett said, “Investing is simple, but not easy.”
- Stocks worth investing in (note my use of the word ‘investment,’ not ‘long-term investment’) are inherently “rare.”
- Although outstanding listed companies are rare, it is not an impossible task for a small number of Taiwanese stock market investors to achieve exceptional long-term investment returns; with effort, it is achievable.
- Since stocks listed on the Taiwan Stock Exchange are worth considering for long-term investors, “why not switch to investing in US stocks?” and “Are there any regulations preventing Taiwanese people from investing in US stocks?”
The stock might fall if I don’t sell it quick
Almost everyone’s first reaction to this knee-jerk question in the title is, “If you don’t sell, the price might fall!” or the second reaction is, “Can you guarantee I won’t lose money if I hold on?”
My view on these two questions is:
- Stocks of companies worth holding long-term and capable of generating substantial wealth for investors are inherently “rare.” Please note my wording: “rare,” not “extraordinary” or “few”!
- Ask yourself honestly: Why did you buy this stock in the first place? How much research did you do before buying? Did you have a deep enough understanding of the company? If your answer isn’t “very high,” you shouldn’t have bought it in the first place; otherwise, your actions are no different from gambling or shooting wildly—hindsight is meaningless.
- Stock market volatility is normal. If you can’t tolerate volatility, you shouldn’t have bought any stocks in the first place.
Fundamentally Wrong
Most people claim to be investors, but their mindset from the very beginning is incorrect; they have something to hide:
- They refuse to admit their lack of ability or suitability. Only a very rare percentage of people are suited for stock market investing, but most investors don’t believe this.
- They treat the stock market as a place to make quick money, only wanting to get rich overnight.
- They gamble and run, exhibiting a complete gambler’s mentality.
- They invest more money than they can afford, even borrowing money; forgetting that investment should use spare funds.
- They don’t want to invest effort; they only want something for nothing.
- They follow the crowd, echoing others’ opinions, lacking the ability to think independently.
Being ridiculed as a miser
Only those with weak wills and who blindly follow the crowd care about others’ opinions. A select few of the world’s most revered investors were ridiculed as misers not only in their youth but even now—in my experience, Warren Buffett, John Berger, and Jim Rogers are seen this not only by outsiders but also by their families.
Buffett’s daughter Susie recounts a well-known anecdote where she asked her father for a US$41,000 loan to remodel her kitchen. He declined, telling her: “Go to the bank like everyone else.” Media reports claim Buffett is stingy, requiring his son to sign IOUs before lending him money. Jim Rogers, in his early married life, insisted on investing first, leading to significant disagreements with his wife about money and ultimately ending his first marriage. John Berger’s daughter even revealed that her father haggled fiercely with a hotel owner over a small room fee while traveling for work.
But have investors considered this? Even a miser needs wealth first to be able to hold onto it. Those who mock others as misers are almost without exception failures in life, owning nothing. “Lie down with dogs, wake up with fleas”; do you care what these people say?
More Efficient Use of Funds
Let me give you two more examples. Have you forgotten the story of Terry Gou’s iron chair? Sam Walton, the founder of Walmart, still drove his beat-up car to inspect business at branches across the United States until the company went public.
Many world-renowned business founders that you and I know were considered misers by ordinary people, you just don’t know it. This is the difference between successful and unsuccessful people—successful people always strive for more efficient use of their funds.
Not Wanting to Get Rich Slowly
Every time compound interest and slow wealth accumulation are mentioned, many people think: If I don’t enjoy the money I earn for most of my life, what’s the point of this investment method? Warren Buffett acquired 99.8% of his wealth after the age of 50.
Compound interest inevitably follows a “low at first, high later” rhythm, as discussed in my previous post of “The great enviable advantages of young people investing in stock“. However, many young people still resist the concept of compound interest.
You’ll never be rich if you don’t start. How can you become rich if you don’t grow slowly? This is why I previously wrote an article, “People who are good at deferred gratification is more likely to succeed“
Don’t want to be rich only when you’re old
What’s the use of being rich at 80? The problem for ordinary people isn’t “getting rich only in old age,” but rather—you’ll never be rich if you don’t start. The problem for most people is:
Unwilling to give up present happiness for the sake of their lives twenty or thirty years from now.
Being impatient for quick success and ignoring the importance of the future over the present.
Only wanting to live in the moment and indulging in instant pleasure.
For old age and planning ahead
People used to rely on children to support them in old age and enjoy their later years; but times have changed, and this approach is no longer viable. Even with children, most modern people cannot expect them to provide for them in their old age; most must raise their own retirement funds.
Housing prices and rents are currently very high, and there’s even an unwritten rule in the rental industry not to rent to the elderly. Besides the reasons that older people are more prone to accidents, have different lifestyles, and face safety concerns, the most important reason is that retirees are often financially strapped.
No matter how successful you were in your youth, if you’re poor in old age, it’s not just material poverty; you’ll live without dignity.
Dignity and freedom are priceless
In life, at least two things are priceless: dignity and freedom. Through long-term investment and planning ahead, one doesn’t have to be subservient to others, nor bow to anyone in times of emergency—one always has choices and can live according to personal preferences and will.
However, most people don’t think about long-term solutions; they focus on the present. Successful people make their own choices, mediocre people have no choices, and the losers have others make choices for them.
Closing words
Wealth equals security, choice, and influence; the more money you have, the more freedom you have to say “no.”
I understand that discussing this topic today will likely end in a state of “a summer insect trying to understand ice.”
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