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5 Golden (Mindset) Tips to Success for the Lifelong Investor

When it gets down to it, we are all lifelong investors. As long as you have a 401k, you are a lifelong investor. As long as you are drawing from savings, you are a lifelong investor.

Once we come to grips with this idea, we can set ourselves up for better success.

By shifting your mindset, from the short term to the long term with these simple tips, you can better take advantage of all the stock market and investing has to offer.

#1- Because there’s no finish line, you can’t lose.

When I mean there’s no finish line, I mean that the only time we’re not “allowed” to compound money is when we are dead.

You can’t take it with you. But you also can start a fresh investment at any time.

So because there’s no finish line with your investing, you really can’t lose even when it feels like you do.

Anytime you lose money in the stock market, or perform much worse than the overall stock market, that’s an opportunity to learn and become a better investor.

There’s no rule that says your next 5 years of investing have to be poor just because your results were not great over your last 5 years, or even your last 50.

We can all find the satisfaction in saving, and investing, and letting that money compound.

Even Warren Buffett still compounds his wealth—one of the richest men in the world—and he continues to let it compound. Buffett simply loves the satisfaction of delaying gratification and watching his wealth compound.

So if Buffett at age 91 can do it, if Buffett at age 91 can still find potential opportunities for his money in the stock market…

Then so can we.

And that’s a can’t lose situation.

Invest in a bad stock?

  • Learning experience.

Invest in a new stock?

  • New potential.

Feeling hopeless after losing so much money?

  • There’s more to life than money. The past is in the past. Life is constantly full of new beginnings, if you take the time to look around.

#2- Because there’s no finish line, define success differently

When you hear about great stock market results, it’s always about the home run hits. The big plays. The stocks that have multiplied.

These stories are fine and good; they are motivational. I mean, even I’ve written about my first 10 bagger and have pride in the fact I even have/had a 10 bagger at one point.

But while my 10 bagger makes for a great story, it doesn’t say much about my success as a lifelong investor.

After all, I’m still early in the game (turning 32 next month).

Right now that 10 bagger is just a paper gain. Sure, I could sell it now to “lock-in the profit”, but one of the major reasons I even have this 10 bagger is because I didn’t do exactly that—I didn’t sell.

Maybe it’s no coincidence that my best stock ever is also my longest stock holding ever.

Whether I keep holding this 10 bagger or sell to lock-in profits, the fact remains that I’m still in the growth stage of my investing life, and have no need to access this money—so why should I sell the stock unless I feel it’s not a great investment anymore?

What does “taking profits” do for me if I’m reinvesting those profits anyways?

Other than telling great stories around the fireplace, what does it matter if I have fifty 10-baggers or zero, if I don’t need to sell these gains right now?

What does it matter if I outperform the market by 30 pts in one year, or underperform by 30 pts the next, as long as I earn an acceptable gain by the time I retire?

As investors, we love to take snapshots in time of past successes, because they make for great stories.

But the real snapshot in time is:

  1. Today
  2. The End

For as long as you are alive and have stock market investments, you are a lifelong investor. And as such, the performance of any one stock is short-term in nature, especially in the grand scheme of most people’s lives.

Stocks that last 80 years or longer are rare, and most will eventually get liquidated by investors in some form well before then.

So then, we should not get caught up on the performance of any one stock over any period of time.

We need to extend the goalposts of our performance.

The past is in the past, and there’s nothing we can do about that. But the future always brings new opportunities in the stock market—through new companies, old companies which find new life, or great companies that become cheap.

And so selling a stock right before it becomes a 10 bagger might be hard emotionally, but it could be the right move for your lifelong wealth if there’s fundamental reasons to believe that stock can’t compound capital at an attractive rate anymore.

Let’s not let our personal goalposts affect the true goalposts that matter…

Which is whenever we withdraw the money.

Whether our stock investments crash to the bottom or blast to the moon, keep in mind the true goalpost that matters.

And if our investment thesis is still intact, we should not sell these stocks because of the emotions that short term, personal goal posts can bring.

(For more on how temporary stock crashes don’t reflect your true portfolio’s value, read this post I wrote to my “future self” recounting lessons from a bear market).

#3- While our finish line is very long, companies’ finish lines aren’t

If you truly internalize the concepts from mindset tip #2, then you probably realize that your investments should be held much longer than most people think.

If temporary short term performance doesn’t really matter, then it’s the financial performance of the companies we own which matters, and as long as those are intact, we should hold the stock regardless of how it does in the stock market.

That said, we need balance.

The odds that you’ll buy a stock which performs well until the day you die are pretty slim.

Most stocks eventually mature and decease (or get absorbed).

Just as no tree grows to the sky forever, no company rises up to dominate forever. All stocks reach some ultimate saturation point, where their prospects of growing faster than an economy become impossible unless that company is broken into smaller parts.

And that’s simply numbers.

If a company grows at an incredibly high, above average rate for long enough, the numbers dictate that the company would eventually become the world’s economy.

That’s just not possible, and because stock prices follow company growth, the growth of a stock’s price has an inherent upward bound limit.

I know it’s not a popular idea—we all like to say that a stock’s upside is unlimited—but it’s true. At a certain size, a company can only grow so much more, and the same with their stock.

Moral of the story:

We should hold our investments for long enough that they can compound our wealth, regardless of short term goalposts, but also short enough that we’ve considered if all its attractive compounding potential is gone.

Whether a company’s compounding stalls because of its size, or because managers make continuously poor decisions with capital, or because its main industry is becoming irrelevant—we should watch our stocks and sell them once it is obvious this is the case.

This is more of an art than a science, for sure; but it’s a great simple tip to keep in mind.

What I’ve been leaning towards lately is to only sell on negative earnings, and allow for other discretionary sells but keep them at an absolute minimum.

Selling on negative earnings is a great rule of thumb (based on my bankruptcy research, read more about that here); likewise keeping discretionary sells to a minimum forces only the most obvious poor potential stocks out of the portfolio.

#4- If dollar cost averaging, you might eventually have to “create your own index”

Maybe an even more important component of success for the lifelong investor is good portfolio management.

I’ve written before about how the ideal portfolio turnover for a fundamental, buy and hold investor is around 10%- 20%, and this creates implications.

In short, portfolio turnover indicates how many stocks an investor is selling in any given year.

For an investor dollar cost averaging once a month (buying one stock per month), a portfolio turnover of 20% implies an investor who sells 2.4 stocks per year (20% * 12 new stocks per year).

This is slightly simplistic, but think about the implications for a minute.

Say that we were a lifelong investor who started at age 25 until age 65.

That would be 480 months of buying stocks; for starters let’s assume each one represented a different stock.

With a 20% turnover, we’d still be adding 9- 10 stocks per year.

Over 40 years, that’s a portfolio of 360- 400 individual stocks.

That’s a pretty big portfolio, and it shows what might happen to you as a lifelong investor if you:

  1. Are great at picking good performing stocks
  2. Limit your turnover, and
  3. Hold your stocks for a long time

These things are just bound to happen. And since many great stocks do eventually become expensive (and perhaps lose their attractiveness as an investment), you might find yourself buying more and more different stocks as you go along.

And that’s totally fine.

If you’re to read my piece about traditional diversification wisdom, you’ll see why I believe that the standard idea of the “diversified, 15-20 stocks portfolio” is not really that great for the average investor.

You basically want more irons in the fire, for more chances of finding those best-of-breed, decades long compounders.

Those are hard to come by if you’re limiting yourself to 15-20 ideas, and you should now see that that idea is impossible if you’re also limiting portfolio turnover (as you should do), and are a lifelong investor.

Just keeping it real.

#5- Don’t give up from overwhelm

All of these things might be overwhelming, and I totally get it.

The stock market is full of contracting advise everywhere you turn, and it can get confusing and disheartening especially if you start to not do so well.

If you take away one overarching lesson(s) from all of this, it’s:

  • Don’t fret your past.
  • Be patient.
  • Let the companies compound for you.

I think one of the greatest disservices a lifelong investor could do for themselves is to micromanage their portfolio and fret about always beating the market.

Your goalposts are yours and yours alone; and they aren’t even the same goalposts as everyone else’s (since we all started and die at different times).

Countless successful investors, when asked at the end of their life what their secret was, have said it was to buy great companies and hold them for a very long time.

That’s it.

And it’s easy to say and hard to practice, which is why we need to remind ourselves of these lessons all of the time.

A few more resources to read to remind ourselves of these:

Trust me, I’m guilty of forgetting that I’m a lifelong investor probably more than anyone else.

I’m totally addicted to checking on my portfolio and assessing relative performance.

But, at the end of the day I feel that I’m better than most at not reacting to these emotions (and my forgetfulness) because I have a few rules of thumb in place, which include those in this post and also some others I’ve mentioned (like the 10%- 20% turnover goal).

And hopefully you can take something from this today and use it to improve your own future performance.

And enjoy it.

Because at the end of the day (and your life), that’s all that really mattered anyways.