Stop Wasting Money and Get Rich

So you want to make money in the market. Who doesn't? But a big part of making money is to stop wasting it.

Here's the secret
Thanks to the Panic of 2008, which caused 10-year market returns to go negative, we've been led to believe that buy and hold might be dead.

I think it might've been dead for a while now. In 2008, there were a grand total of 2.43 billion trades among stocks listed by the NYSE Group. If we assume that brokerage firms charged a modest commission of $9.99 per trade -- as does TD Ameritrade (Nasdaq: AMTD) -- they would have hauled in more than $24 billion last year in trading commissions.

Over the past four years, their take would have been north of $55 billion:

Source: NYSE Group; assumed $9.99 commission per trade.

And that's not even counting the Nasdaq!

Given those 5.54 billion trades, how much did investors bring in from the end of 2004 through the end of 2008? As a whole, probably not much -- the NYSE Composite index fell by 20.6% over that time period.

Insult to injury
Yet investors nevertheless paid out tens of billions of dollars in commissions.

Note something else in that table: The number of trades has ramped up. In fact, you can look at some of the companies trading on the NYSE and see this trend yourself:

Sources: Yahoo! Finance and Capital IQ, a division of Standard & Poor's.

There's so much trading going on that the entire ownership of these companies is changing hands more than once or twice a year! And all of that increased activity came at a cost of billions of dollars, paid by investors -- you and me -- on top of the market's plummet.

What can you do?
So, rather than making the brokerage firms rich -- or becoming one yourself -- how can you really stop wasting money in the market?

Stop trading so much.

In his new book, Enough, Vanguard founder John Bogle writes:

Investing is all about the long-term ownership of businesses. Business focuses on the gradual accumulation of intrinsic value, derived from the ability of our publicly owned corporations to produce the goods and services that our consumers and savers demand, to compete effectively ... and to capitalize on change. ... Speculation is precisely the opposite. It is all about the short-term trading, not long-term holding, of financial instruments -- pieces of paper, not business -- largely focused on the belief that their prices, as distinct from their intrinsic values, will rise. [Emphasis in original.]

My grandma knew this in her bones
My grandma invested in stocks her whole life. Her secret was to buy good companies that she was familiar with, hold them for years, and watch them grow and grow and grow. And you know something? She did pretty well doing only that. A decades-long investment in ExxonMobil (NYSE: XOM), for instance, helped finance the home to which she and my grandpa retired.

I'm not suggesting that you never sell -- business and investing theses change over time. There were times when my grandma's investments went down -- to name just a few: 1962, 1969-1970, 1973-1974, 1981-1982, and 1987.

But -- and this is key -- she stuck to her strategy. She didn't chase the latest hot tip or fund. She didn't get shaken when the price dropped 10% in a day or 30% in a month. And she certainly didn't hop in and out of the market, trying to find a quick profit, while wasting money on commissions feeding the brokers. She knew that $1,000 spent this year in commissions -- one buy and one sell per week at $9.99 each -- could be worth thousands of dollars down the road.

Where might my grandma, or you, invest today to generate that kind of wealth down the road? Two ideas on my radar are Coca-Cola (NYSE: KO), the soft-drink maker with the world-famous brand name, and Freeport-McMoRan Copper & Gold (NYSE: FCX), the copper producer that is likely to be supplying infrastructure needs.

I know in my bones that she wouldn't be trying to find a quick buck. She knew that slow and steady wins the race, as John Bogle believes.

If you need other ideas on where to steadily invest to grow wealth over time, I recommend our Motley Fool Stock Advisor newsletter service, run by Fool co-founders David and Tom Gardner. Even after the disaster of last quarter, this service is still beating the market by 25 percentage points, and right now we're offering a free 30-day trial membership to Stock Advisor. You have nothing to lose -- except, possibly, the race.

Jim Mueller is a big fan of Aesop's fables, as well as Coca-Cola. He owns shares in that company, but none of the other ones mentioned. Wal-Mart and Coca-Cola are Inside Value selections. The Fool thinks its own disclosure policy will win the race, too.