Don't Invest If You Have This Mentality

Have you ever come across a friend who brings up their latest hair-brained idea for a business that makes you just scratch your head?

Like the friend who can’t make toast without burning it but decides a catering business will be a good idea? You think to yourself, “You’re the last person who should be serving food to the public,” but you keep your thoughts to yourself. Well, there was a time when Warren Buffett did not keep his thoughts to himself about the last people who should be investing, especially in stocks. 

Warren Buffett once said, 'It's a terrible mistake' to own stocks if this one specific trait applies to you and this trait can stop you from getting rich. 

What is this trait? “If you worry about corrections, you shouldn’t own stocks,” he once said in an interview with The Street. In other words, if you’re worried about the constant ups and downs of the stock market and continually play the timing game, you’ll never get rich.

Timing a stock to get in before a bull run or get out before a bear run is a fool’s errand.

Nobody is consistently successful at it—not even the pros, where 89% fail to beat the market. 

If you’re myopic and are worried about the day-to-day swings of the markets and have a short investment window, I would go as far as to say you shouldn’t be investing at all. If you want to be rich, take a page out of the investing handbook of the ultra-wealthy—you know, investors like Warren Buffett.  

How is Warren Buffett's approach different from that of the average retail investor?

While many fret over market corrections and hang on every piece of news and social media post in order to try to time their investments, Buffett takes a different approach:  he advocates a different mindset—one that prioritizes the long game over pursuing short-term gains. 

Investing over a long period of time is not only more profitable but also less stressful.

Timing the markets requires constant vigilance and knee-jerk reactions to market shifts. This can be draining. Sophisticated investors, like the ultra-wealthy, family offices, and institutional investors, take a different approach. They think long-term. 

Those who invest for the long term have different priorities than those with a short window. Those who time the market are interested in one thing: growth. They hope to capitalize on the increase in the price of a stock by selling it for more than what they bought it for. On the flip side, they also time the markets to get out before a stock dips to minimize losses. 

Sophisticated investors aren’t interested in short-term gains from price fluctuations. They take the craziness of the markets out of the equation completely by investing long-term, where the short-term ups and downs are ironed out over time. That’s not to say that savvy investors aren’t interested in growth. They are, but it’s long-term growth and appreciation they’re interested in and not the short-term gains from price fluctuations that retail investors chase.  

Besides riding out short-term corrections in the market, what other motivations do sophisticated investors have for investing long-term? Well, all you have to do is look at their portfolios for insight into what motivates sophisticated investors. 

There are two assets in particular that the ultra-wealthy prize above all others in their portfolios. These alternative assets are commercial real estate and investments in private companies (i.e., private equity and venture capital). Besides the long-term nature of these investments, what is it about these assets that draws savvy investors to them? It turns out a lot of things. 

Real estate and private equity offer many appealing advantages for building wealth that the markets don’t. For one, in addition to long-term appreciation, these assets also offer the opportunity for cash flow. Passive income is the key to wealth because you can generate multiple streams of it without having to put in additional time. This allows you to make and compound money in your sleep. This is how financial independence is achieved. 

Besides passive income, another advantage of alternative assets like real estate and private equity is that they are not correlated to Wall Street. Because of their long-term nature and long lockup periods, these assets are insulated from the broader markets that are susceptible to market volatility from the 24-hour news cycle. 

The way to get rich is not by speculating on stocks and predicting market fluctuations and corrections by following the news and social media. If you’re concerned about market corrections, you shouldn’t be investing in stocks, as Warren Buffett suggests. In fact, you shouldn’t be investing at all.  

If you want to get rich, start thinking long-term. Start thinking about assets that will compound your growth through a combination of appreciation and cash flow, not just growth. Start considering alternatives.