Over time, I've realised that most investing mistakes don't come from a lack of intelligence. They come from excitement.
A new theme emerges. A stock runs hard. Everyone is talking about it. It feels urgent. It feels like something is happening.
Whenever I feel that pull, I try to slow myself down and ask one simple question: Would I still want to own this business if the share price didn't move for three years?
It sounds basic. But it has saved me more than once.
Image source: Getty Images
Price movement is not the same as progress
It's easy to confuse a rising share price with a strengthening business. Sometimes they go together. Often they don't.
A company can execute well, grow earnings, expand margins, and build long-term value while its share price goes nowhere for a period. Equally, a stock can double on hype without the underlying fundamentals improving much at all.
If I'm only interested because I expect a quick re-rating, that's speculation. If I'm happy to own the business even through a flat patch, that's investing.
Businesses, not tickers
When I buy ASX shares, I try to picture the actual business.
What does it sell? Who are its customers? Is the product essential, or discretionary? Does it have an advantage that competitors would struggle to replicate?
If I can clearly explain why the company should be larger, more profitable, or more relevant in five to ten years, I'm far more comfortable ignoring short-term noise.
If I can't, that's usually a red flag.
Could it survive a downturn?
Another version of the question is this: what happens if conditions get tougher?
Would customers still buy from this company? Does it have a strong balance sheet? Can it keep investing through a slowdown?
I'm not looking for perfection. But I want resilience.
Markets will correct at some point. They always do. I don't want to be holding businesses that only work in ideal conditions.
Am I buying the story or the substance?
It's amazing how persuasive a good narrative can be. Themes like artificial intelligence, electrification, decarbonisation, and digital transformation are real. But not every company attached to those themes will win.
When I feel myself getting swept up in the story, I try to bring it back to numbers: revenue growth, margins, cash flow, return on capital.
Stories can change quickly. Strong economics are harder to fake.
The long game
Most of the wealth built on the ASX has come from holding high-quality shares like Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES) for long periods of time.
That requires conviction. And conviction usually comes from understanding, not excitement.
So before I buy any ASX share, I ask myself whether I would still be content owning it if nothing dramatic happened for a while.
If the answer is yes, I'm far more likely to proceed.
Foolish takeaway
Investing does not need to be complicated. For me, it comes down to buying businesses I believe in, at prices that make sense, and being prepared to hold them through quiet periods.
If I would not be comfortable owning the company through three years of sideways movement, I probably should not own it at all.
That single question keeps me grounded. And over time, staying grounded is often what builds real wealth.
