To “Stay the Course” is more than just time in the market.

When investors hear the phrase “stay the course”, it often centres around the idea that time in the market is better than timing the market. I agree with this. However, when I am discussing the idea of staying the course it is about behaviour not timing the market. Staying invested is a core factor of investing long-term. Not being scared out of down cycles and bear markets can certainly accelerate wealth creation.

The below chart is typically used to reinforce this idea. Illustrating all the market crashes, fear, economic doom and gloom, geopolitical issues…yet the S&P 500 marched on. If investors stayed fully invested over all these cycles the gains over decades have been over 10% annualised. This proves to some extent the modern theory of staying fully invested long-term can still achieve exceptional results.

Buy-and-hold strategies have come under fire because, through the ups and downs, there have been long periods of stagnated underperformance. So why would investors hold through such volatility? Rather than debate the types of strategies to prove or debunk these claims let’s focus on the idea of staying focused from a different perspective.

In volatile markets, investors want to act. It can help ease their anxiety if they feel in control and feel they are doing something. It often leads investors to act based on irrational decision-making and emotions leading to poor results. There is ample evidence showing how timing the market, not staying the course can erode long-term returns. Buying high and selling low is a one-way street that does not end well.

What do I mean by staying the course?

When I am talking about investors needing to “stay the course” I refer to their investment philosophy, process, and financial goals. Often investors will gravitate to an investment style early on such as Value or Growth, and Passive or Active. The only problem is they never give the style enough time to work. Investors create a strategy, and a goal, and then expect it to deliver multibaggers fast. Investors understand the power of compounding and sticking to a consistent strategy over a long-time horizon yet interrupt the process.

No strategy or style works all the time. They each have a cycle and time to shine. Investors who implement a value-style approach looking for bargains may not get immediate results or find themselves in a value trap. On the reverse, growth investors chase an expensive-looking stock on the basis the company will grow into its high premium, only to find it was just expensive at the start. The most common problem I see with investors is not around their inability to invest, and learn how to analyse stocks, it is the impatience of not learning to stay the course on their strategy.

Investors act like the below illustration, wanting the results but not prepared to let the plan play out. Results take time, investing is no different than this.

Investment styles and strategies all have their time and place, certain styles do better in different markets. You can not always win all the time. Investors think that the investing style or the strategy is wrong (sometimes it is) but most of the time it is investors not giving it a chance to work.

How can investors “Stay the course”?

Doing less or nothing is still a decision. Investors think they MUST make choices and act. Sitting patiently is a choice. It’s hard to sit and wait and let the strategy work. Those that stick around master their style because they stayed in the game long enough.

That’s why I am such a proponent of having a plan, a written philosophy and a strategy that guides investors, it’s not made up, it helps through all sorts of occasions.

Don’t start with an investment style and after a few months say it didn’t work, so you think something else will. There is a correlation between success and staying the course long enough to see a strategy play out.

You will evolve, but you won’t deviate too far from the core of what you’re trying to do or align with.

How do Investors not stay the course?

• Change investment styles too often.
• Tinker too much, rebalance too often, over trade.
• Don’t trust their investment thesis.
• Scared out of a position when it drops.
• Scared out of the market when it drops.
• Skim small profits the moment a company goes up.
• Stop contributions as compounding is taking too long.
• Take a loss and think the strategy no longer works.
• Change goals and objectives too often.
• Don’t understand valuations therefore give up on it.
• See other investors doing well so jump ship there.

To stay the course means: Staying invested, going against your emotions and impatience, thinking long-term, staying disciplined, and allowing your philosophy to work. What can drive all these decisions is lifelong learning. Studying your art, educate yourself on your style.

You must find a strategy and style that will allow you to stay the course long-term. That is why this component of Investment Philosophy has so many areas to consider.

In Summary…

Strategies take time to execute. Impatience as we have touched on before is widespread in today’s markets and investor behaviour. I get it, I am guilty of it, I want results too, and I want my compounding to happen today. However, I believe because of my entrepreneurial background and building and selling companies, this has helped me to realise things take time. Strategies and styles do work, just not at the pace I want, but they do work.

To become a successful investor, you must hone your skills over a lifetime. Don’t change styles or strategies too often because you are not dealing with short-term results when creating wealth. If you’ve spent time developing an investment philosophy, and then a strategy with a process to execute it, give it the time it deserves.

Align Every Change to Your Goal before you simply change ideas. It’s important to highlight that investors shouldn’t avoid change altogether; however, must consider patience and their long-term goals first. Investing styles are not “systems” to implement they are an investment philosophy that either will or won’t align with you.

Some of the greatest investors have stayed the course on their investing styles and philosophies for decades and they reap the long-term rewards of that consistency. So can you if you Stay the Course.