Investing Lessons that Have Stood the Test of Time – Part 2

Welcome to the second part of the series on timeless investing lessons!

As a brief recap: Late last week, investor Irving Kahn passed away at age 109. Kahn started working on Wall Street in 1928, and was a disciple of the father of value investor, Ben Graham. With more than eight decades of experience in the stock market, there may be a number of precious investing lessons from Kahn that have stood the test of time.

I shared the first lesson in a previous article. Here’s the second lesson to consider.

Discipline for the long term

As a student of Ben Graham, the late Kahn was a believer in the power of compounding. Having invested in the stock market for well over 80 years, he had this observation to share:

“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline.

It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to your capital over the course of your life.”

As my colleague Ser Jing has pointed out before, we may have a higher chance to obtain a positive outcome in the stock market if we just extend our time horizon. This is demonstrated in the chart below from another of my colleagues, Morgan Housel.

Long-term returns for the US stock market

Ser Jing also added that this applies to the Straits Times Index (SGX: ^STI) as well:

“Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses.”

Said another way, we have the choice between continually seeking returns in the short term, and just allowing long term compounding to happen. As Fools – like Kahn – we choose the latter.

Click here to round off the final part of this series.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.