Investing in shares can be an incredibly lucrative path to wealth. Apart from property, there has been no asset class capable of delivering top-tier returns to investors over a long period of time.
But investing in shares is also a risky business. Doing it the wrong way can destroy an investor's capital. So if you want to invest in shares, you need to be able to answer this one question: 'Am I a long-term investor?'
At its core, buying a share means you are buying an ownership stake in a business. You aren't trading a ticker code, you're investing in a company.
The legendary investor Warren Buffett once said that "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes".
He also said, "the most important quality for an investor is temperament, not intellect".
It's a long-term attitude that Buffett is talking about here.
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Successful ASX share investors focus on the long term
Making money from ASX shares requires an investor to ignore what the market is doing on a day-to-day, or month-to-month basis.
Shares are volatile, and the market is temperamental If you're the kind of investor who gets spooked and sells out when your shares fall in value. It will be very hard to make money over the long term.
Buffett famously likes to 'be greedy when others are fearful', and he has not become a multi-billionaire by following the crowd.
This is the attitude that leads to long-term wealth creation from the share market. Remember, just leaving your cash in an ASX shares index fund has historically gotten investors around an 8% annual return over the past 20 years.
If you want that kind of return, all you have to do is buy your index fund and leave it alone. That way, you can harness the power of compound interest in all of its glory.
Yet many retail investors don't even achieve those kinds of returns. The best way to kneecap your gains is by trying to time the markets by jumping in and out of shares.
Look at most successful share market investors, and you'll see that the vast majority follow the rules that Buffett has set down over his very long and profitable career. So if you don't have a long-term mindset, ASX shares are probably not the best path for you to take.
