Chapter 40 [The best operation of investment is not to operate]

Source:https://www.facebook.com/100063294665283/posts/592054579581026/

[James Origins and Today] Chapter 40 - The Best Maneuver for Investing is Not Maneuvering (06/06/2023)

The best strategy for investing is to buy index funds with money, hold them for a long time, and kill them. This is the best operation.

Of course, many investors will want to use the operation to make more money, and they may actually make money, but we have to distinguish the difference between ROI (return on investment) and ROE (return on assets).

For example, an option with an investment of $2000 earns $500, and the ROI is 25%, but if there is a million to keep cash, the ROI is only 0.005% ($500/$1 million), but for a full investor, earning 1% earns $10,000, and the ROI (ROE) is 1%.

Buffett said that if investment only looks at one number, it is roe (return on capital), so it has long been proven that all operating roe can not win the performance of the long-term holding of the buy index. That's why so many people still operate, and that's greed (overconfidence) and fear.

Some people want to buy low and sell high, or use options to earn a free lunch, and the final long-term return on capital is still the return on losing the long-term holding of the buy index. Such an operation is greed.

Some people start to get nervous because of the market decline, find that their previous holding position is too high, the financing is too high (financing in the investment market is suicidal, it is not desirable), and finally want to adjust the risk, reduce the shareholding, sell the shareholding, such operations come from fear.

Although the market has proved that all operations are ineffective, investors sometimes have operations and want to operate. This is derived from animal instincts, avoiding risks, and the nature of operations can never increase your profits, but it can comfort your heart and satisfy the human genetic animal instincts (avoiding risks). This instinct is unfavorable to investment. But the operation error, the probability of being correct is 50%, which increases the torment of your heart.

So it is still recommended that people buy and hold to kill and not sell is the best strategy, why is the best strategy, because it is suitable for the general public.

However, some people suffer more pressure from the market downturn than they previously thought. As a result, they have to underweight and reduce risks. This is a necessary operation, but never imagine that your operation will increase your profits. Instead, imagine that your operation can let you sleep well, eat well, and move forward without trouble, and achieve the purpose of the operation rather than expecting to increase profits (we do not need to make a profit, as long as the investment is stable).