Best-selling author and former Motley Fool contributor Morgan Housel once sent out a tweet that I love. It says this: "A book called Shut Up and Wait. Every page is just this chart." The chart is similar to this one below, showing multiple decades of the S&P 500's total return. Housel's point: Time makes everyone a great investor -- if you can remain patient.
Why buy-and-hold investing works
Every investor, whether they realize it or not, has a strategy. Whether it's value investing, growth investing, momentum investing, or technical analysis, everyone follows some method or a variety of methods for selecting stocks. Yet, whatever strategy an investor chooses must account for the trend Housel points out: Over the long term, broad-based market indexes move higher.
That might seem obvious. Clearly, why would anyone invest in the stock market if it doesn't generate positive returns? However, with some strategies, long-term price appreciation is discounted or ignored altogether.
Consider technical analysis, which encourages adherents to sell stocks if specific trend lines are broken. That strategy might work for certain stocks in particular circumstances, but in the aggregate and over the long term, investors could miss out on the enormous upward drift of the stock market.
In short, it relies on timing the market rather than letting time work for you. What's more, even when you drill down to individual stocks, there are examples where selling too early (rather than letting your winners run) can really hurt.
Case in point: Meta Platforms
Imagine you'd had the foresight to invest $50,000 in Meta Platforms (META +0.22%) (formerly Facebook) on its initial public offering (IPO) date in 2012. Now, imagine you'd held on to those shares for nine years -- through concerns over its business model, the Cambridge Analytica controversy, and many other bumps in the road.
By late 2021, your shares would have been worth just shy of $500,000. But by late 2022, they would have collapsed in value to less than $160,000.
META Total Return Level data by YCharts
Buying and holding requires what some might call intestinal fortitude. After all, it would have been very hard to watch almost $350,000 wiped out -- particularly when Meta CEO Mark Zuckerberg appeared dead set on pouring billions of dollars in cash into the company's Reality Labs unit.
Nevertheless, patient investors were rewarded. Indeed, if you'd held on to your shares through Meta's dark night of the soul that was 2022, your shares would now be worth -- drumroll please -- $610,000.
META Total Return Level data by YCharts
How to make this strategy work for you
To sum up, investing is hard; holding through volatility is even harder. What's more, there will be circumstances when selling not only seems like the easy thing to do -- it will seem like the only thing to do.
Nonetheless, investors who have adopted the buy-and-hold strategy have succeeded precisely because they manage to fight the urge to sell. That, in turn, can lead to life-changing portfolio results.
