Friends,
Every few months, my wife and I (Stoffel, here) pack up the kids and head to my aunt's house.
- Their favorite part of the visit: she has an indoor swimming pool.
- Their least favorite part: taking the shower afterwards.
But it isn't because they hate taking showers -- it's because this particular shower is tricky. Imagine we rate the temperature of the water from zero (freezing cold) to 10 (so hot it could burn your skin).
Their attempts at using the shower usually go like this:
- Turn the shower on, and it's a zero -- they up the knob to where they think a 7 would be -- comfortably warm.
- Ten seconds later, it has barely changed (let's call it a 2) -- so they up it all the way to a 10.
- It finally starts warming up, so they jump in.
- But it quickly gets so hot (a ten!) that they jump out, and turn it back to a five.
- The water doesn't immediately cool, so they turn it all the way back to zero.
- It finally starts to cool, so they jump back it.
- But it quickly gets so cold (a zero!) that they jump out.
It pretty much continues like this until they call for help.
Jokes aside, what my kids have basically learned is the difference between investing and trading.
We aren't going to take sides and say one is better than the other (though we definitely prefer the former). Instead, we want to point out the difference in the feedback loop between the two.
When my kids take a shower at our house, the water will respond almost immediately to any change in the dial. It makes total sense for them to make instant changes based on immediate feedback.
This is akin to pure technical investing -- which focuses on stock prices and charts more than businesses and moats. If a stock suddenly starts behaving in a way that doesn't make sense to you, jumping in and out regularly is the coherent way to behave.
The shower at my aunt's -- however -- is more like investing. And it underscores why investing is so difficult for most human beings. When we're focused on businesses and moats in the real world, it can take months and years for cash flows to show up, proving that a company is dominating a space.
There's a delay in the feedback loop. And acknowledging that delay is paramount.
If we are investing because we believe in the long-term potential, then we need to take a long-term view. In our analogy, that would mean turning the dial to our desired temperature and then waiting for a long time outside the shower.
Why would anyone want to do that? Why not just focus on trading?
In trading, you're up against lightning-fast computers, algorithms, and the multi-billion-dollar institutions that are moving money around on a daily basis.
The only true edge individuals have comes in investing: you know the game you're playing. You are willing to endure the short-term ups and downs that traders create because your focus is on the long-term.
It's not easy, but it is lucrative. And over the long run, learning how to play this game is more than worth it.
Wishing you investing luck in the months ahead,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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