The Importance of Holding on to Your Investments and Doing the Work for Informed Opinions

The Importance of Holding on to Your Investments and Doing the Work for Informed Opinions

In the world of investing, there is a popular saying: "Just Keep Buying." This phrase emphasizes the notion that the only time you should sell your investments is for rebalancing purposes or in retirement. By continuously acquiring assets and holding onto them, you ensure the growth of your future wealth. Selling out is equivalent to selling out on your own financial prosperity.

When it comes to evaluating stocks, one commonly used metric is the P/E ratio or price to earnings ratio. This ratio measures how expensive a stock is relative to its current earnings. Interestingly, there is a negative relationship between the P/E ratio and the future real return of a stock. As stocks become more expensive, you can expect lower real returns in the future. However, as you hold onto your investments for longer periods of time, the negative returns slowly disappear, and you begin to see more positive real returns.

While we all have opinions on various matters, how many of us actually put in the work required to have a well-informed opinion? Charlie Munger, a renowned investor, believes that one should not have an opinion on any subject unless they understand the other side's argument better than the opposing party. This emphasizes the importance of doing the necessary research and seeking out competent people to understand their perspectives.

To truly have an informed opinion, one must engage in critical thinking and examine the key variables at play. This involves actively seeking out arguments that challenge our own views and considering multiple perspectives. It also requires intellectual honesty, which means being willing to let go of our cherished ideas when they no longer hold up to scrutiny.

Rapid destruction of ideas, when appropriate, is a valuable quality to acquire. It allows us to adapt, learn, and grow. As Rabbi Moses ben Maimon once said, "Teach thy tongue to say I do not know, and thou shalt progress." By acknowledging our limitations and being open to new information, we can continue to evolve our understanding and refine our opinions.

Doing the work to hold an opinion also guards against confirmation bias, our natural tendency to seek out information that supports our preexisting beliefs. When we actively challenge our own views, we become better equipped to argue against ourselves and engage in productive discussions. This mental discipline allows us to consider alternative perspectives and make more rational decisions.

Understanding our circle of competence is crucial in this process. We must recognize the areas where our knowledge and expertise are limited and be willing to defer to those who are more knowledgeable. Having the humility to admit when we don't know something and actively seek out opposing arguments is a sign of intellectual maturity.

Doing the work required for informed opinions is not a quick process. It takes time, effort, and a willingness to question our own beliefs. However, by engaging in this practice, we become more adept at discerning between those who have done the work and those who haven't. We can distinguish between informed individuals and those who merely mimic the ideas of others without truly understanding them.

In conclusion, it is essential to hold on to your investments and continuously acquire assets for long-term wealth growth. Additionally, by putting in the work required to form well-informed opinions, we can make better decisions and engage in more productive discussions. To achieve this, we need to actively seek out opposing arguments, challenge our own beliefs, and embrace intellectual humility. By incorporating these practices into our lives, we can navigate the complexities of investing and thoughtfully contribute to meaningful conversations.