To be a successful long-term investor is
easy in principle, but difficult in practice. It is easy in principle
since buying and holding a diversified portfolio of stocks is
available to all investors. Yet it is difficult in practice since
tales of those who have quickly achieved great wealth in the market
tempt many people to play a game very different from that of the long-term investor.
People who follow the market closely often
exclaim: "I knew that stock (or the market) was going up!
If I had only relied on my judgment, I would have made a lot of
money." But hindsight plays tricks on our minds. We forget
the doubts we had when we made the decision not to buy. Hindsight
often distorts the past and encourages us to play hunches and outguess other investors, who in turn are playing the same game.
For most of us, trying to beat the market leads
to disastrous results. We take far too many risks, our transaction
costs are high, and we often find ourselves giving into the emotions
of the moment — pessimism when the market is down and optimism
when the market is high. Our actions lead to substantially lower
returns than can be obtained by just staying in the market.
Achieving good, long-term returns is simple
and available to all who seek to gain through investing. There
are several fundamental strategies, such as asset allocation and diversification that may help you increase your returns while minimizing your
investment risk.
Jeremy Siegel, The Wharton School 