You’ve read a lot about getting rich quick and tips to get rich. While there is no such things, there are three simple words to live by: always keep buying. This is the philosophy of Nick from Of Dollars and Data, and I couldn’t agree more.
Always keep buying. It’s that simple.
Always Keep Buying
‘Time in the market beats timing the market’, that’s one of the many investments quotes big investors like Warren Buffett live by. It is about consistently buying stocks, no matter if the stock market is moving up or down.
If you’re investing, there will always be stock market movements. Ups or down. These movements can ensure that you don’t want to invest in that particular moment in time. Why? Because you are sure that the market will move in a certain direction.
Many people don’t want to buy near a peak, fearing of a future market crash. Many people don’t want to buy when the market is plummeting, fearing that it will go down even more.
The only problem is: you know when the correction is going to happen. The market might as well go up for a significant period of time. Get over your fear and start investing.
Dollar Cost Averaging
When you’re buying stocks no matter the market movement, this is called dollar cost averaging (DCA). With dollar-cost averaging, you buy more stocks when the market is down and less when the market is up. This makes sure you have an average buying price over time.
I’ve noticed that it can take a lot of energy when you’re constantly thinking about the stock market. Should I buy? Should I wait? What is a good moment? What is a good stock? It’s just too much time and energy for me. That’s why dollar-cost averaging is such a great thing!
Markets high, markets low, crash, all-time high, always keep buying. Pay yourself first when you receive your salary, and invest monthly in the stock market.
Even When Markets Go Down?
Yes even when markets go down.
I’ve read this interesting story recently, about Bob. People refer to Bob as the worst market timer ever. Bob made his first investment of $6,000 in 1973, right before the S&P 500 lost 48% of its value. After that investment, he only felt confident to put his money in the market in 1987. He invested $46,000 just before the market dropped 30%.
Timing the market wasn’t Bob’s thing. He decided to not sell anything because he was afraid that he would be wrong about his sell decisions too.
After a great bull market, Bob invested $68,000 in the market in 2000. Until 2002, the market would decline by more than 50%. Bobs’ final investment was made in 2007 when he invested $64,000. He found the market crashing again by more than 50%.
After the financial crisis, he decided to keep his money in the mark until 2013, when Bob finally retired.
Basically, Bob bought $184,000 in shares just before any major market crash in the last 50 years. He is a terrible market timer, but Bob did one thing right. He never sold, not even once.
Do we want to know, how did he do? Bob ended up being a millionaire, with $1.16 million and a total profit of $980,000. That is an average annual return of around 9%. Why? Because he never sold.
Overcome The Psychological Barrier
It’s easy to always keep buying when the market is rising or flat. However, when markets are falling, it’s not so easy. Rationally, that’s the best time to buy. Even though the best time to buy is when markets are falling, that is the time when you are most likely to give up and sell.
To realize the implications of this, let’s look at the most recent downturn that lasted more than one year. That was from 2000 to 2002, with the dotcom bubble. In total the S&P 500 lost over 50% of it’s value over three years.
Imagine that in 2000, the market was down 10%. You are thinking, that’s a great opportunity to buy. The stocks are cheap now. Let’s sell my bonds and buy more stocks! Yay, I’m going for it!
Another year goes by. In 2001 the stock market falls almost 40%. This isn’t making you very happy, you expected the stock market to rise by now. Okay, buy the dip right? I mean, how much lower could the market go? You sell more bonds, buy more stocks, and put some more money towards your investments.
In 2002, however, there is another market drop of 18%. Again?! That’s it, I’m done with the stock market. I will never time the market again.
That’s the problem when you’re trying to time the market, you would never have imagined stocks to fall that much in three consecutive years. How would you react? When you’ve lost over 50% of your portfolio value in three years, what would you do?
This is just to show the point of how difficult it can be to stick to a simple strategy: always keep buying.
What is your investment strategy?