Sunday morning, I was out getting the newspaper at the newspaper stand. I put in my 6 quarters, and I pulled the lever, and I did what I always do when I’m about to pick up a newspaper from the rack. I paused for a second, and then I lifted up two of the papers so that I could pick up the paper on the bottom. The moment that I was doing this, a guy was walking his dog past me, and he yelled out,
“Isn’t funny how the newspaper on the bottom is always so much more appealing?”.
I yelled back at him, “Yeah, I guess I’m just paranoid that someone took something extra out of the paper on the top”.
Isn’t that incredibly foolish thinking? I am so paranoid that I would go out of my way to get the paper on the bottom, all because I think that someone pulled the sports section or target ad out of the paper on top. But, I do it all the time without much conscious thought about what I am really doing. I am sure some of you out there have done the same thing. On my way back home, I started thinking about how our fears and paranoia can hinder our investment strategies and returns.
In a 2004 Chairman’s letter, Warrent Buffet wrote:
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”
One reason that Warren Buffet is unbelievably wealthy and successful with his investments, is that he knows the foolishness in trying to time the stock market. You can literally lose thousands or even millions of dollars in your lifetime if you try to time the market. I think that our fears and paranoia about the economy and the stock market are one reason that we pull our money out or put our money under the mattress rather than investing it for the long-term in growth stock mutual funds. The newspaper and news channels do not help, either. Every day I hear a new segment or article about something that is going to ruin the economy or crash the stock market. Whether it’s the oil prices, housing market decline, subprime mortgage meltdown, or the price of milk. News people find something to make us paranoid about our investments. When in reality, the market is strong, the economy is strong, and even if there are some dips in the market or a short recession, investing for the long-term will always pay off in the end. Buffet also said that if you can’t see yourself holding an investment for 10 years, you shouldn’t hold it for 10 minutes.