CODEXCard 3 of 6 · Letters to Shareholders, Six
Time in the market vs timing the market (Time in Market, Not Timing)
The market's short-term moves are noise.
Time in the market versus timing the market is a classic investing debate, and Warren Buffett firmly sides with time. He often repeats Benjamin Graham's image that in the short run the market behaves like a voting machine, swayed by popularity, while in the long run it behaves like a weighing machine, reflecting what businesses are actually worth.
If short-term prices mostly reflect mood, then guessing next month's direction is a contest against noise. Many investors who jump in and out end up missing the strongest days and paying extra costs and taxes along the way. Buffett's alternative is to buy good businesses at sensible prices and let them grow. He has written that his favorite holding period is forever, meaning he would rather keep a great company than trade it.
The mistake is treating holding forever as a rule for everything you own. Buffett's approach assumes you only buy what you would happily keep for decades. If the reason you bought something no longer holds, the business has changed or your thesis was wrong, selling is sensible. Patience is for good businesses, not for defending mistakes.
This idea connects to Buffett's skepticism about forecasts. If you do not need to predict the next move, you do not need the people who claim they can.
Example
Two coworkers start investing in the same index fund. One sells every time the news turns gloomy and buys back when it feels safe again. The other sets up an automatic monthly contribution and rarely checks. Ten years later the second coworker has more, mainly because she never missed the sharp rebounds.
Try it this week
Set up or review one automatic monthly investment this week and decide in advance what would actually make you sell.
From Letters to Shareholders, Six (Warren Buffett · 1979).
