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  • Writer's pictureAndre Dirckze

Investing is a long game

Updated: May 10, 2023

Congratulations many of you had Whitehaven Coal in your portfolio in 2022. The stock price of the company increased by 241.3% from $2.76 at the start of the year to $9.42 by the end of 2022. That would have turned a $1,000 investment into $3,413 by the end of December.

You should also be pleased with yourself if you owned the energy company New Hope Corporation, which increased in value by 176.5%, or Core Lithium, which increased in value by 70.8%.


Fear of Missing out


There's no doubt that anyone who owned these stocks would have considered this a "win." During the same time period, the ASX 200 fell 5.6%, the most in four years. Whitehaven Coal, in particular, was extremely profitable.


Similarly, if you did not own these stocks, you may have felt as if you had missed out. It's natural to be envious of those who have seen their investments grow at such a rapid pace.

There will also be many people who decided that, with such rapid growth, they needed to purchase Whitehaven Coal as well. This is not only because the lure of quick profits is difficult to resist, but also because they do not want to be the only ones at the barbque who isn't winning.


There is no competition


Investing in the stock market is frequently like this. When the price of a company rises, it appears that there are winners and losers.


This kind of language seeps into the world of managed funds as well. People discuss which funds "beat" the market and which are the "top performers." It's designed to sound like there's a race going on.


True investing, on the other hand, is not a competition. It's also not a race. You will not be rewarded for outperforming everyone else. Furthermore, FOMO (fear of missing out) can divert your attention away from what is truly important. Worse, FOMO can lead you to take risks you should not have taken in the first place.


Outcomes


The only thing that matters when it comes to investing is whether you are meeting your personal objectives. And it has nothing to do with how other people's investments are doing. That is entirely a personal choice.


Will you be able to afford to send your children to university? Can you afford a comfortable retirement?


Those are the crucial questions you should be asking. Of course, it's tempting to believe that investing in a stock that has risen in value will make all of these things easier. Your goals would undoubtedly be much closer if your money had grown three or four times in the last year.


Risks


That is, however, the kind of thinking that enticed people to lose billions of dollars by entrusting their money to Bernie Madoff in the 1990s and 2000s. It's the same motivation that drove thousands of people to buy bitcoin before it crashed in 2017.


Of course, not every top-performing investment is a Ponzi scheme or a price bubble, but investing with the goal of getting "the best" return is risky. This is due to two factors.


Looking behind


The firstly decisions' are made in retrospectively. People invested in Madoff for the same reason they invested in bitcoin: they saw how good past returns were and simply extrapolated that into the future.


However, that is not how markets operate. Spectacular short-term returns are never infinitely repeatable. People involved in Madoff's Ponzi scheme learned this the hard way.


Second, chasing performance necessitates focusing on your investments. Whitehaven Coal may have massively outperformed the index in 2022, but you would have had to be invested in just that one stock to see all of that outperformance.


That may appear to be fine while the stock is rising, but what happens if the price falls? You are fully exposed to that as well.


Take your time be consistent


However, if you know what your goals are and what kind of returns you need to achieve them, you can avoid viewing investing as a competition that you must "win." You can diversify your portfolio, use low-cost products to generate consistent returns, and feel good about your long-term prospects.


The fable of the hare and the tortoise was written by Aesop 2,500 years ago, but it could just as easily have been written for today's performance-driven investor.


Returns that are flashy and eye-catching may appear appealing. When it comes to investing, however, the most certain way to achieve your goals is through a boring, plodding approach with your eye on the destination.










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