We are sure that everyone would have heard about the Aesop’s fable about the Tortoise and the Hare story. A tortoise challenges the hare to have a race and how the hare gives him a big lead, thinking the tortoise would take to much time to reach, he takes a nap and how the tortoise, in the end, covers the distance and ends up being a winner.
What does this story teach us?
It may sound so untrue that the slow tortoise wins in the end but this does make sense when we think about long term investment. Considering the case of and investor where you can take short term investors or traders or speculators to be the hare and the long term investors (or just investor) to be the tortoise. Traders show the same characteristics of a hare, they take short term positions to make money in the quickest form. They usually take a high risk which shall be avoided unless you don’t have proper knowledge of technical analysis. On the other hand, long term investors do fundamental research and invest with a view of getting superior returns in the long term.
Hare are impulsive, impatient and look for instant profit booking, whereas Tortoise is patient, persistent and are mentally prepared to wait for a while.
Let us compare some characteristics a Trader and Investor
|Personality||Hare (Impatient)||Tortoise (Patient)|
|Risk||Medium to High||Low to Medium|
|Time Horizon||Day, Week, Month, Year||Years, Decades|
|Charges paid||Very high||Low|
They both follow a different style of investing, but when it comes to generating superior wealth, the tortoise will be the ultimate winner, to prove this let us discuss the benefits of investing with the style of a tortoise (i.e long term investing)
Benefits of Long term investing:
- Power of Compounding: “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” -Albert Einstein. Compounding gives the benefit of interest on interest thereby generating a good amount, many of the famous investors live Warren Buffett have earned huge amount by staying invested for the long term and enjoying the benefit of Compounding.
- Low Risk: Staying invested in the market reduces the risk by removing the lost opportunities that happen in the market. Continuous buying and selling could result in missing the big up days in the market
- Emotions are out of equations: The best aspect of long term investing completely removes the emotion equation which is the major cause of bad investment decision which can lead to huge losses
- Your Money works for you and you can sleep well: The stress level of an Investors is very low as he adopts the buy and hold strategy, where he does not have to worry on, everyday trades like that of a trader and can sleep peacefully.
- Low Commissions or Trading charges: The lesser the transaction the lesser is the commission or trading charges and the larger is the profit booked over time.
- It’s Easy: Buy and hold strategy requires a little fundamental research and all that you need to do is to be patient and hold your stocks for the long term, allowing compounding to do its magic, this is comparatively very easy w.r.t to trading where we have to time the market to book profits and which also requires sound technical knowledge.
- Tax Savings: Long term investments are taxed less in comparison to the short term which will automatically save some good amount of money for you
In the end, we can summarise that retail investors should follow the tortoise strategy(i.e. Long term investment) to grow their wealth and should invest in good quality stocks for the long term. The same philosophy is followed by StockBasket – which is India’s first long term buy and hold investing platform which has expert-curated baskets of stocks.
Investors can invest in StockBasket by opening an account with Samco Securities. StockBasket core principle says that an investor should invest in superior quality stocks and hold them for at least 5 years period to get superior returns.