I've been investing in ASX shares for years now, longer than I care to admit to be frank. It has been one of the most rewarding experiences of my life, not just financially, but intellectually too.
Investing in shares can never truly be mastered. Even Warren Buffett freely admitted to making mistakes late in his career at Berkshire Hathaway. The constant journey of learning keeps one on their toes, and, although mistakes can have a real financial impact, they are part of that ultimately rewarding learning curve too.
I have made more than a few mistakes when it comes to ASX share investing over the years. Some of the most egregious include buying Slater & Gordon shares only to see the company go bankrupt, and participating in the Raiz Invest Ltd (ASX: RZI) IPO and getting wiped out.
But today, I'd rather discuss one of the challenges of investing that I have had to overcome. This challenge will confront everyone who buys ASX shares, and can either make or break your portfolio and your long-term returns.
This challenge is not learning how to decipher a balance sheet, or knowing which sticks will shoot the moon. It is far more simple than that. It is the simple act of doing nothing.
One of the most under-appreciated aspects of investing is that the act of buying an owning shares seems to elicit a need to attend to them. To buy more or sell down, to move our money around and 'react' with agility to whatever is happening in the world.
When Donald Trump announced a tentative peace deal, all we hear is that investors are buying shares like crazy. Conversely, we investors are the first to hear about "$50 billion wiped off the share market as US-Iran war escalates".
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The hardest part of investing in ASX shares
This implies that we, as investors, should be doing something similar. Surely one isn't a real investor if one isn't constantly dipping in and out of shares. Or selling high, buying low, pruning their portfolios, or even jumping into the latest IPO.
If your job is trading stocks or assets, then this might be acceptable. But for the average investor who just wishes to slowly-but-surely build wealth by investing in Australian businesses over long periods of time, I am of the firm belief that less is more. Quality businesses adapt to their circumstances. They tend to survive when times are tough, and thrive when the proverbial sun is shining.
To be a successful investor means trusting the companies themselves to deliver, not that the market will always give you the stock price you might want to see. As Warren Buffett once said:
If you have to closely follow a company, you shouldn't own it… If you buy a farm, do you go and look every couple of weeks to see how far the corn is up, or whether people say this might be a year of low prices? No, you buy a farm and hold it. I bought a farm in the '80s and I've been there once. It doesn't grow faster if I go there and stare at it or cheer for it.
I think most ASX share investors, and especially those who just invest in index funds, should adopt this attitude. Trading based on what is happening around the world will almost certainly whittle down your capital and returns.
Sure, if a company is fundamentally disrupted or makes a calamitous management error, you may want to think about selling its shares. Just as Buffett would for his farm if it was discovered that corn was somehow carcinogenic.
However, most of the time, doing nothing is probably the right course of action. Even if it can be the hardest course to take.
