Let's face it -- most people want to be rich. Some want to be rich so they can buy their dream home, a yacht, or a Ferrari. Others want to be rich so they can provide for their family in the best possible way.
As for me, I like the choices being rich would bring:
- I could retire early.
- I could do the job I want to do, rather than the job I have to do.
- I could afford to send my children to the very best universities.
- I could donate time and money to those who need it more than I do.
Yes, ordinary stock market investors like you and I can become extraordinarily rich courtesy of the power of compounding returns. But there's a catch: Becoming rich through stock market investing takes time.
And most stock market investors, including me, want to get rich now.
The next big loser
When it comes to investing in the stock market, people want to make money fast. They constantly look for the "next big thing."
It's possible that, with a combination of skill and more than a little luck, you could find tomorrow's "next big thing." But you could also miss by a mile. The wrong company in the right industry can lose your money just as fast as the wrong company in the wrong industry.
The scary truth is that if all you do is invest with the "next big thing" in mind, the chances are you'll be a stock market loser.
In a recent discussion with students from Emory and the University of Texas, Buffett explained that there was one primary reason why relatively few people have been able to emulate his investing success: temperament.
"People want to make money fast, but it doesn't happen that way," he said.
By shooting for the stars with every stock pick, we run the real danger of losing money.
There's nothing wrong with Google
When we're focused on the short-term gains we think will make us rich, we tend to track stock prices frequently -- daily or even more often. If a stock price is going down, we can panic and assume there is something wrong with the company.
For example, Google (Nasdaq: GOOG ) shares fell almost 40% in the early part of 2008, yet the company is still growing strongly, and it still continues to dominate the search-engine market. Sure, at close to $700 a share, the stock looked expensive. But this is a quality company, and investors should expect to pay a premium to buy the shares.
But if a stock price isn't moving, we get bored. Rather than looking at the company and the fundamentals, we focus on a stock price that isn't doing what we want it to.
Take Motley Fool Stock Advisor pick Biogen Idec (Nasdaq: BIIB ) . David Gardner first recommended the company in March 2005 at around $67. Since then, it has traded below $35 and over $80, but today it is back around $62. In short, the stock price is virtually unchanged over the past three years. Boring or what?
Bailing out too early can be an expensive mistake
When we focus on the "next big thing," a falling stock price or a stagnant stock price can end in the same way: When we get bored, we get panicked, and we make irrational investing decisions. Instead of focusing on Biogen Idec's stellar growth, including the performance of its newest MS drug, for example, we could easily focus on the "boring" stock price and bail out far too early.
Getting rich through stock market investing is a long-term career. As Buffett also said in the recent Emory discussion, long-term investing is "not as exciting as guessing whether the stock price will go up the next day." Predicting the "next big thing," like predicting tomorrow's stock price, is ultimately a fool's (small f!) game.
The good news is that if you buy the right companies at the right prices, and combine that with patience, a dedication to continued learning, and a willingness to keep committing money to the stock market during good and bad times, you can be rich, too.
That's exactly the investing philosophy of Motley Fool co-founders David and Tom Gardner. Their investing service -- Motley Fool Stock Advisor -- focuses on buying great companies whose stocks are trading at attractive prices and holding them for the long term.
Their stock recommendations are up 55% since inception in 2002, versus 18% for like amounts invested in the S&P 500. If you'd like to learn more about the Stock Advisor service, a 30-day free trial is on us.
Fool contributor Bruce Jackson is impatient and easily bored; just ask his wife. Luckily, his impatience doesn't extend to stock market investing, nor his boredom to watching cricket. He owns Berkshire Hathaway B shares, as does The Motley Fool. Berkshire Hathaway's B shares are recommended in both Motley Fool Inside Value and Motley Fool Stock Advisor. Biogen Idec is a Stock Advisor recommendation. The Motley Fool's disclosure policy is far from boring.