Templeton believed that the market is not like a casino, it provides an opportunity to buy and own businesses. And when we own businesses, we actually want to see them growing over a period of time rather than trading them every now and then just because of fluctuation in prices and other factors which may or may not have bearing on real returns that could be generated over the longer period of time.
Trading and speculation will not only consume huge commission, taxes and your mental temperament but in the long run it could also disappoint in terms of returns if it is not your cup of tea. There are very few peoples or rather less than 5% per cent of the people who have successfully made money through trading or speculating in the stocks. Trading seems to be the easiest way to make fastest money but in reality for most of us it is opposite.
One of the Wall Street legend Lucien Hooper once said that “What always impresses me,” he wrote, “is how much better the relaxed, long-term owners of stock do with their portfolios than the traders do with their switching of inventory. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he pays smaller capital gains taxes; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by ‘thinking too much'.”
It is hard, but it is true buying low helps in many ways. Like the Ben Graham said that if one buy with enough margin of safety the impact of unknowns or errors can be minimised in terms of providing enough safety in a falling market or in case of any mistake made while assessing prospects of a company. Investors who do not jump on the bandwagon and rather wait for the right price at the right valuations enjoy much happier time. In a rising market most participants and their moods swing in sink and they find every rise to be rational. Markets have the tendency to keep on providing enough reasons for the every rise in share prices. In 2008 before the markets crashed, investors and most of the analysts in the Street before the crash were supporting share prices on different basis. A chunk of price rise was built on future expectations. Market capitalisations of many companies were reflecting what they will be worth in 10-15 years from that time. However selling at the peak is difficult. If investors keep a control on greed and stay with the right mind set and tuned with the ground realities, it is quite possible to avoid such fancy. It reminds one of the famous quote of John Templeton who said that "Invest at the point of maximum pessimism."
To make a lasting impact and to create a permanent wealth while investing in markets, the most important thing is to invest in the quality companies because that is where the protection of the capital could be highest and returns come naturally. Like Warren Buffett says if you simply focus on what not to buy, the returns will take care of themselves. That apart if you build a portfolio of quality stocks, you are guaranteed to have peace of mind. You do not have to flip on every news and wake up in the middle of might to calculate possible earnings or quantify the risks. But does the quality deliver less? Many investors have this wrong conception that the quality stocks deliver less. On the contrary, research has proved that quality stocks over the years deliver far greater returns compared to their poorly managed peer companies. However there could be brief periods when the low quality stocks outperform the quality stocks, but that is only in the short run. What poor quality companies create in 5 years, is eroded in one day.