Investing for the long-term is the best way to invest, but it's not easy.
Choosing investments because of long-term factors is simple enough, but staying invested for the long-term makes things more difficult.
The best (and worst) thing about shares is that future share prices are completely unknown. Share price movements (and dividends) ultimately decide what our investment returns are.
Is it a good idea to lock in some gains with a winner? Take some profit off the table? Or are you supposed to let your winners run?
If one of your businesses runs into difficulty then are you supposed to sell and move on? Or think long-term and hold on through the rough times?
The answer with every single share is probably: It depends.
It can be quite painful to see one of the shares you own that was doing well suddenly erase those gains. We tend to think of share prices and profits as things that can be recovered if they are temporarily(?) hurt. But the past generally has nothing to do with the future of that business.
Will the Telstra Corporation Ltd (ASX: TLS) share price ever get back to $6?
How long will it be before the Domino's Pizza Enterprises Ltd. (ASX: DMP) share price gets back to $70?
Investors can do the most wonderful discounted cashflow forecasts, do incredible research and all the other necessary work, but the investment returns – the only thing that truly counts – is out of our control. The best we can do is decide the price we're going to pay.
I also believe it's important to recognise whether you were lucky or skilful with your investment picks.
The more you know why you invested in a company the better you will be at assessing if any specific problems are get-out-ASAP issues or an opportunity to buy more shares. Buying high and selling low can afflict any investor, so it's best to avoid that habit if possible.
Foolish takeaway
There are so many uncertainties and psychological biases that can affect our investing, which is why it's difficult to remain invested unless you have a diverse portfolio, or own low-cost exchange-traded funds (ETFs) or high-quality listed investment companies (LICs).
