The Wisdom of "Slow is Fast" in Investing
As the market ecosystem experiences significant shifts and falls into short-term turbulence, it’s worthwhile to discuss the philosophy of “slow is fast” in investment strategies.
01►Life as an Investment: The Philosophy of “Slow is Fast”
In his collection of writings, “Chunhan Tang Ji,” the Qing dynasty scholar Zhou Rong relays a thought-provoking anecdote.
During the Shunzhi era, a scholar named Zhou Rong was eager to reach the town of Zhenhai, accompanied by a young page carrying a large stack of neatly bound books. As twilight approached and the town gate was still two kilometers away, the anxious scholar questioned a ferry operator nearby if they could reach the town before the gate was locked.
The ferry operator, taking a moment to examine the young page, responded slowly, saying, “If you walk steadily and slowly, the gate will still be open; if you rush, the gate will close.”
Confused by this statement, Zhou Rong believed the operator was jesting and urged the page to quicken his pace. However, in their haste, the page stumbled, causing the books to scatter all over the ground. After they hurriedly gathered the fallen books and re-tied the stacks, night had fallen.
When they finally reached the town gate, they found it had long been securely shut. Only then did Zhou Rong grasp the deeper meaning behind the ferry operator's words.
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In the concluding remarks of his essay, Zhou Rong writes, “Those who rush will ultimately fail.” Sometimes, hurrying can lead to setbacks; what may appear as temporary delays can indeed yield ultimate success.
Life mirrors this notion, as does investment. When I first entered the field, I heard numerous stories about legendary investors who spent years unearthing value, followed by years of waiting for prices to adjust, only to retain their investments for decades.
At the time, I lamented the long cycles and somewhat outdated notion of patience, feeling that this approach seemed mismatched for an age characterized by urgency and a relentless race against time.
As Warren Buffett famously stated, “No one wants to get rich slowly.” Most investors lean towards the thrill of short-term gains, chasing stories of rapid wealth accumulation, while lacking the interest and patience for opportunities that promise gradual, steady growth.
However, as time progresses, the value of patience and wisdom has begun to manifest profoundly. Especially following the market's repeated downturns over recent years, many investors have gradually recognized that the essence of investing lies not in fleeting surges or drops, but in solid logic and stable long-term returns.
Ultimately, in investment and finance, stability is paramount – one must first hold on to their investments to profit; greater fluctuations and retractions mean increased difficulty in returning to previous levels.
Thus, the essential secret to long-term investment success is to maintain control over volatility while accumulating small victories on the right path toward larger wins. Both aspects are interdependent and crucial.
02►Taking Small Steps to Reach a Thousand Miles: On the Value of Broad-Based Index Funds and Regular Investment
Upon reflection, the simple saying "slow is fast" encapsulates profound philosophy. This concept is particularly evident when we combine broad-based index funds with systematic investing methods.
Firstly, opting for broad-based index funds is undoubtedly choosing the right pathway.
Are broad-based index funds slow? In many ways, yes. These funds aim to capture beta returns; stories of overnight wealth created by index funds are scarce.
Yet moving slowly can lead to longer journeys. Statistical analysis demonstrates that since 2010, extending the holding period significantly enhances the average return, which outperforms both the Shanghai Composite Index and the CSI 300.
Furthermore, in examining the performance of various asset classes over the past decade, the CSI A500 index has surpassed the increase in housing prices in major cities, providing a superior alternative for protecting purchasing power against inflation. “Steady streams” might appear less exciting initially, but they represent a more sustainable approach to wealth accumulation.
The core reason for this lies in the nature of indices: they are inherently stable, while their constituent stocks can fluctuate.
Even under market-driven trading circumstances, indices can experience significant short-term retracements, yet it's rare for a stock to plummet indefinitely following a major downturn; the index constituents undergo regular re-evaluations, balancing strong performers with weaker ones. Long-term trends for quality equity indices remain upward.
Importantly, while every era has its own unique narratives and opportunities, broad-based indices consistently progress in alignment with historical trends, moving along with GDP growth. Any deviation in market price from fundamental value will ultimately revert to its original state.
As the narrative of wealth through real estate begins to fade, the capital markets are emerging as new reservoirs of wealth, suggesting that the era of broad-based indices is only beginning to unfold.
Secondly, combining broad-based index funds with regular investments is key to achieving “a thousand miles through a thousand small steps.”
Since 2004, the CSI A500 index has experienced significant fluctuations alongside the A-share market, undergoing four major bull and bear cycles. Imagine that during the first three complete bull and bear cycles, a so-called “chosen investor” mistakenly entered the market at several historical peaks:
Even under such extreme conditions, analysis of regular monthly investments across one, two, and three-year periods reveals:
As the holding period lengthens, returns generally trend upward. Compared to a one-time investment approach, not only does the ratio of profitable outcomes significantly increase, but the magnitude of losses also diminishes substantially, often leading to substantial gains in subsequent bull markets.
In other words, if luck were on our side, the entry point might not be at such historical peaks, thus yielding even better results. Reduced volatility and increased potential are the hallmarks of regular investments.
In reality, market behavior is never a straightforward ascent or descent but a constant ebb and flow of volatility. When markets hit lows, the consistent investment amount allows for acquiring more fund units; conversely, during market peaks, fewer units are purchased. This long-term regular investment approach naturally fosters a “buy low, sell high” strategy, effectively smoothing fluctuations and significantly decreasing average investment costs.
Thus, as long as the chosen fund remains vibrant and pulls through, akin to a broad-based index's upward trend, selling at higher prices will allow an investor to profit and exit successfully.
Broad-based index funds inherently strive for compounding returns and long-term growth. Additionally, regular investments tend to have lower capital utilization in the initial stages, so immediate substantial returns may not be apparent.
Yet, this process resembles planting a seed; it requires time and patience for the seed to take root, grow, and flourish. Over the years, as the market represented by index funds progresses, when we look back after many years of consistent investment, we might be astonished to find ourselves standing among towering trees.
By adhering to the unflinching strategy of regularly investing in broad-based index funds, we maintain a rare calm amid turbulent market changes. Those seemingly slow beginnings truly embody the essence of “slow is fast” in investment.
Ultimately, in this fast-paced era, where narratives and trends swiftly transform, individuals can easily find themselves left behind if they aren’t mindful. Fortunately, with systematic investing, indices remain robust, and broad-based indices continually evolve alongside prevailing trends.
Investing in broad-based indices is a demonstration of the “slow is fast” philosophy, guiding us to construct our wealth patiently, brick by brick, while adopting a more composed, long-term perspective on investment and financial management. When we discard the urge for quick gains and remain unshaken by short-term market fluctuations, we can confidently adhere to the principle of “Occam's Razor” in investments, favoring simplicity and clarity while navigating through the ups and downs of market cycles.
Though the journey may seem endless, those who persist will inevitably reach their destination.