Most people only ever dream of getting rich.

While a lucky few do succeed, why is it that so many investors in the share market never ultimately attain the level of wealth they set out to achieve?

One reason, in my opinion, is “over-trading”.

It’s human nature to want to be actively doing something, to make things happen!

As a general “life rule” to live by, that certainly might not be a bad thing, however when it comes to investing, by and large, being over-active is to the detriment of one’s wealth!

Consider the performance (total shareholder returns) of the following three well known stocks over the past 10 years:

The above three stocks have all provided outstanding returns to long-term shareholders, however, how many investors have actually had the patience to hold these stocks through the investment cycle?

When faced with the daily pressures of the latest news headlines and the inherent ups and downs of share prices, many investors will fall into the trap of finding a reason to sell.

In reality however, if you buy well there can in some instances be almost no reason to ever sell!

If you can master the psychological challenge of “over-trading” then you’re well on your way to achieving solid, long-term investment returns.

Then it’s just a matter of some careful stock selection and some simple maths.

Here’s the maths….

  • Let’s assume you can achieve a compound return on your investments of 10% per annum. While that’s no cinch, as the above three examples prove, it is an achievable rate of return.
  • Next, let’s assume you have $150,000 to invest.
  • Through the effects of compound interest (reinvesting all of your gains) and time in the market, in the space of just 20 years your portfolio will have increased to just north of $1 million.

Would you like some help with stock selection?

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.