2. Forget about the money
Amazing investments can be highly volatile in the short term. When you buy a high-flying stock, your portfolio might drop thousands of dollars in a day. Overcome by fear, you might remove your money from the market at the worst possible time. And that’s how people lose money in the stock market.
Think about it: On bad days in the market, billionaires lose billions of dollars. Those losses happen all the time. In the short term, stocks can do anything. Those whose wealth is tied to the market feel the impact of those movements constantly.
So many people succumb to greed and cash out when they’ve made some short-term money. Or they succumb to fear and cash out when they’ve lost some short-term money.
If you give in to these impulses, though, you’ll almost certainly underperform the stock market dramatically. You’ll miss out on the gains you could have made by holding onto winning stocks over time.
3. Winners might look like losers in the short term
Aggressive investors swing for the fences and try to find the best winners in the stock market. I love the high flyers. But doing so means getting a lot of calls wrong.
The experience is especially humbling because companies often mount comebacks from seemingly impossible challenges. Those who’ve held winners like Amazon (NASDAQ: AMZN) and hold them through all the volatility are rich. But that’s easier said than done. Amazon had several 50% drops and one scary 90% drop.