Last week we understood the importance of Saving and Investing Money. This week we shall see the next important investing principle of legendary Investors like Benjamin Graham and Warren Buffett which is,Investing for Long Term
Jeff Bezos, the founder of Amazon.com, once asked Warren Buffett, the legendary American investor, about people not "copying" his style of investing. To this Warren Buffett replied that nobody likes to get rich "slow"
'Getting rich quick' is a dream. And with this unrealistic dream many people enter the stock market and soon lose their initial capital.
Hence investors like Warren Buffet, Benjamin Graham, Peter Lynch, etc always insist on having a long term outlook to be successful in stock market investing
Always remember this famous quote of Warren Buffett
Just as trees take a fairly long time to be useful. Even the quick growing trees take a decade before they are going to make enough shade to sit beneath. Similarly, in case of investing it takes time and patience to enjoy fruits of labour.
Let me explain this with help of an example
If we go by the statistics, then in last 40 years, Sensex itself has given a CAGR return of around 16% (base year of the Sensex was 1978-1979 and its base value was 100 points which has increased to 41,253.74 points as on 31st December 2019).
From this example, we are sure you understand the importance of time in investments. The longer you invest money, the more it grows. This is not else but Power of Compounding. And this immense power is described by Albert Einstein as the eighth wonder of the world
Now keeping inflation in mind, the returns that you investments generate should be fairly above the average inflation rate to ensure that time does not eat away value of your money.
And answer to this is investing in equities, if you are keeping a time horizon of 10-15 years or more.
Next week I shall explain you the next important investing lesson i.e., Requirements to Succeed in Stock Market Investing