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There are two primary approaches to investing in the stock market. Some market participants adopt a trading-oriented strategy; they believe that financial gains depend on their ability to predict the evolution of the market (when to enter and when to exit), or in other words, they try to time the market. Other market participants favor a long-term investment approach: they expect their investments to compound over 10 or 20 years, by spending as much time in the market.

Time in the market vs. timing the market is a classic debate in the investment world. Kenneth Fisher had a very strong opinion on this debate. To him, “Time in the market beats timing the market”. The duration on an investment (the time in the market) is a significantly better factor of success for your investments that the quality of your attempts to optimize entry and exit points (timing the market).

For the vast majority of market participants, the effort to outmaneuver daily fluctuations is not just difficult, but a statistically losing game.

In this article, Hadrien PUCHE (ESSEC, Grande École Program, Master in Management, 2023-2027) explores the behavioral and financial foundations of Fisher’s principle, analyzing why the “cost of being out” can often exceed the risks of staying in through market cycles.

About Kenneth Fisher and the quote

Kenneth Fisher is a billionaire investment analyst, who founded Fisher Investments. He also is a long-time columnist for Forbes. He is well known for his contributions to investment theory, particularly in popularizing the use of the Price-to-Sales ratio. Throughout his career, Fisher has been a vocal critic of the “market timing” fallacy, arguing that most investors hurt their returns by trying to avoid downturns.

This quotes originates from a 2018 USA Today article where Kenneth Fisher wrote :

“Even the greatest investors are wrong maybe a third of the time. But here’s some good news: You don’t need perfect timing to achieve marvelous returns. Time in the market beats timing the market – almost always.”

Analysis of the quote

The fundamental question every investor face is: How to invest? While the allure of “buying low and selling high” sounds simple, executing it consistently is nearly impossible. Fisher’s quote highlights that the market is not a puzzle to be solved daily, but a vehicle to be ridden over years.

“Timing the market” requires two perfect decisions: knowing exactly when to get out and exactly when to get back in. “Time in the market,” conversely, requires only one decision: to start. By staying invested, you capture the total return of the market, including dividends and the recovery phases that follow volatility. Fisher’s principle suggests that the “missed opportunity” of being on the sidelines is the greatest risk of all.

Furthermore, Fisher’s insight also implies that an investment’s duration is very often more important than the yield. Too many investors are obsessed over finding the best “alpha” (a few extra percentage points of return) but forget about duration. A moderate return sustained over decades will always outperform a spectacular return that gets interrupted all the time.

Similarly, another thing to consider is the heavy “cost of inaction” that comes with searching for the perfect entry point. By waiting for the ideal market conditions or trying to identify the absolute best opportunities, you are losing time (and therefore compounding); a cost that is rarely justified by the improved entry point.

Three Financial Concepts Linked to the Quote

We now introduce three financial concepts that are related to this quote, and that you may find useful to understand the mechanics behind Fisher’s principle: the long-term drivers of the market growth, the danger of missing the “Best Days”, and the Dollar Cost Averaging (DCA) to find a good compromise between timing and time.

The long-term drivers of the market growth

To understand why “time in the market” works, we have to look at what actually drives the market’s long-term upward trajectory. Unlike a casino, the stock market is a vehicle for productive capital, and its growth is fueled by fundamental economic forces:

• GDP Growth & Corporate Earnings: As the global economy expands and companies become more efficient, they generate higher profits. Over decades, stock prices tend to track this fundamental growth in value.
• Inflation: Since stocks represent ownership in real assets and businesses, they act as a natural hedge. As prices for goods and services rise, nominal corporate revenues and asset values follow suit.
• The Equity Risk Premium: This is the “extra” return investors demand for choosing stocks over “risk-free” assets like government bonds. To earn this premium, you simply have to be present.

By staying in the market, you aren’t just “hoping” for a rise; you are capturing the compounding effect of global productivity and inflation.

The danger of missing the “Best Days”

When it comes to the statistical distribution of the market returns, it is important to understand that it is highly skewed, with the bulk of annual gains often concentrated in a handful of trading sessions. This concentration creates a massive “cost of being out” for any investor that happens to miss such days.

The figure below shows the distribution of the returns on the S&P 500 index compared to the estimated normal distribution. What matters here is that the S&P500 distribution has much fatter tails than the normal ones; meaning that very high and very low returns happen more than one would expect with a normal distribution.

Figure 1. Distribution of the returns on the S&P 500 index

Source: Seeking Alpha

The issue with these fatter tails is that missing a small number of high-returns days can be catastrophic for an investor’s terminal wealth. Historically, missing just the 10 best days in a decade is enough to cut an investor’s total return by half, and missing the best 30 days end can turn the returns negative, even in a bull market.

The paradox of the “Time in the Market” is that these “best days” usually occur within weeks or days of the “worst days.” By trying to avoid the worst days, many also miss the best days, and this is where the true opportunity cost lies. The only proven way to make sure that you are present for the best days is to stay invested through the worst ones

DCA: The Compromise Between Timing and Time

Let’s say you have €10,000 today, and you want to invest them in the market. You do not want to “time the market” and want instead to spend “time in the market”. However, you are facing the “entry dilemma”: should you go all-in now or wait for a better price in a few days?

Going all-in (Lump Sum investing) means immediate exposure, but it can make many investors uncomfortable. To make it easier and more manageable, many investors choose to rather do a Dollar Cost Averaging (DCA): investing their money progressively at set intervals (monthly, weekly, etc.).

The DCA approach is psychologically attractive, because it removes the paralysis that comes with the fear of “buying the top.” If the market drops the day after your first investment, you actually benefit by buying the next “tranche” at a lower price. However, financial literature suggests a different reality.

Most academic research, including the study by Brennan, Li, and Torous (2005), argues that Lump Sum investing outperforms DCA roughly 75% of the time. This is because markets have a positive “expected return” (they go up more often than they go down). By holding cash on the sidelines to “average in,” you are essentially betting against the market’s natural upward trajectory.

Brennan’s core argument is that “Dollar-Cost Averaging just means taking risk later.” By choosing DCA, you aren’t avoiding market risk; you are simply delaying your full participation in the market’s growth. The “cost” of this delay is often higher than the benefit of potentially catching a lower entry price.

So why do so many professionals still recommend DCA?

The choice is ultimately a psychological one. While a Lump Sum is mathematically superior, it carries a high “regret risk.” If an investor puts €10,000 in on Monday and the market crashes on Tuesday, they might panic and sell everything, violating Fisher’s principle of staying in the market. DCA acts as a behavioral bridge: it may yield slightly lower returns on average, but it ensures the investor actually stays the course.

Ultimately, the “best” strategy is the one that prevents you from exiting the market prematurely. How much stress do you feel at the idea of a short-term loss? If that stress leads to bad decisions, the “insurance” provided by DCA is well worth the mathematical trade-off.

Why you should always keep this quote in mind

Fisher’s perspective extends far beyond financial advice. It is a reminder that in most cases, in both your personal and professional life, consistency matters more than intensity. While the modern world often rewards the pursuit of the “perfect” moment, this mantra suggests that the duration of your efforts is a far more reliable predictor of success than the timing of your actions.

At its core, this quote is a reminder that time will always be your greatest asset. You may not always secure the highest yields, or the most prestigious returns in the short term, but as long as you maintain a longer presence, the cumulative effect of being active will eventually outweigh the benefits of a single, well-timed move.

Consider your own professional career. As a student, your immediate returns may not be that great, and you may fail at “timing the market” by not landing the perfect role in the perfect company in your first attempt. But as long as you spend more “time in the market” (by building skills, networking, gaining experience…), you will eventually reach your objectives.

There is also a significant (and often overlooked) cost to trying too hard to find the perfect opportunities. When you obsess over timing, you risk analysis paralysis and the exhaustion of your mental capital. Sometimes the most strategic move is to accept the path currently before you, proceed with discipline, and allow the future to unfold. By focusing on your tenure rather than your timing, you trade the stress of the unknown for the certainty of cumulative growth.

In the long run, the most successful individuals are rarely those who waited for the wind to be perfect; they are those who kept their sails up regardless of the weather. By internalizing this quote, you adopt a mindset that values patience as a form of hidden strength, ensuring that your capital (both financial and intellectual) has the necessary room to breathe, and expand.

Related Posts on the SimTrade Blog

   ▶ All posts about Quotes

   ▶ Hadrien PUCHE “The stock market is designed to transfer money from the impatient to the patient” – Warren Buffett

   ▶ Hadrien PUCHE “Price is what you pay, value is what you get” – Warren Buffett

Useful resources

Fisher Investments Market Commentary. Insights from Ken Fisher’s firm on why staying the course matters.

Academic literature

Fama E.F. (1965) Random Walks in Stock Market Prices, Financial Analysts Journal, 21(5), 55-59.

Brinson G.P., L.R. Hood, and G.L. Beebower (1986) Determinants of Portfolio Performance, Financial Analysts Journal, 42(4), 39-44.

Brennan M.J., F. Li, and W.N. Torous (2005) Dollar-Cost Averaging Just Means Taking Risk Later, Review of Finance, 9(4), 509–535.

About the Author

This article was written in February 2026 by Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027).

   ▶ Discover all articles by Hadrien PUCHE

Investing is often a battle with our own emotions. We see prices rise sharply and crash just as fast, and this can lead to very bad investment decisions. However, Charlie Munger’s wisdom comes once again handy, to remind us to avoid overlooking at prices all day-long, because “Investing is stupid if you’re more worried about short-term volatility than long-term quality”.

In this article, Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027) explores why Munger’s wisdom serves as a welcome reminding of the difference between short-term price and long-term value.

Charlie Munger: the architect of quality investing

Charlie Munger

Source : Fortune

Charlie Munger (1924–2023) was far more than a mere lieutenant to Warren Buffett; he was the primary intellectual catalyst who shifted Berkshire Hathaway’s strategy away from the traditional “cigar butt” school of Benjamin Graham. While Graham sought “fair businesses at a great price,” Munger convinced Buffett of the immense power found in “great businesses at a fair price”. The 1989 Letter to Shareholders is particularly famous for the “Mistakes of the First Twenty-Five Years” where Munger’s influence is clear.

He achieved this by integrating a multidisciplinary framework (incorporating insights from psychology, biology, and physics) to decode the complexities of the financial world, ultimately arguing that the quality of a business is the only reliable engine for long-term wealth.

It has to be said that there is no record of Charlie Munger saying these exacts words, but it does summarize well his investment philosophy.

An analysis of this quote

Munger’s philosophy rests upon the bedrock observation that the stock market operates as a “weighing machine” in the long run, even if it behaves like a “voting machine” in the short term. He famously dismissed the academic obsession with volatility as a proxy for risk, arguing instead that a twenty-percent drawdown is not a “loss” unless the investor is forced to sell, or if the fundamental earning power of the business has permanently deteriorated. Real risk, in the Munger school of thought, is defined strictly as the permanent loss of capital (the inability to recover one’s initial investment), which has almost no correlation with the standard deviation of daily price movements.

Furthermore, Munger recognized that investors are often their own worst enemies, due to “loss aversion” (a biological vestige of our evolutionary past where a declining stock price triggers a “fight or flight” response). He suggested that if an individual lacks the temperament to ignore these short-term signals, they are effectively paying an “emotional tax” that prevents them from reaching the higher echelons of compounding.

Indeed, the first rule of compounding is to never interrupt it unnecessarily; by reacting to volatility, investors often liquidate high-quality assets during temporary market drawdowns, effectively resetting their exponential growth clock and sacrificing future prosperity.

Financial concepts related to the quote

This quote reminds me of a few very interesting financial concepts that you may be interested in.

The flaw with Beta in the modern portfolio theory

In the world of academic finance (specifically within the Capital Asset Pricing Model, or CAPM), risk is mathematically defined as Beta (β), which measures the sensitivity of an asset’s returns relative to the broader market.

As a reminder, the CAPM expresses the expected return of an asset as a function of the risk-free rate, the beta of the asset, and the expected return of the market. The main result of the CAPM is a simple mathematical formula that links the expected return of an asset to these different components. For an asset i, it is given by:

Where:

• E(r_i) represents the expected return of asset i
• r_f the risk-free rate
• β_i the measure of the risk of asset i
• E(r_m) the expected return of the market
• E(r_m)- r_f the market risk premium.

The risk premium for asset i is equal to β_i(E(r_m)- r_f), that is the beta of asset i, β_i, multiplied by the risk premium for the market, E(r_m)- r_f.

In this model, the beta (β) parameter is a key parameter and is defined as:

Where:

• Cov(r_i, r_m) represents the covariance of the return of asset i with the return of the market
• σ²(r_m) the variance of the return of the market.

However, Munger viewed this as a fundamental intellectual error. From an analytical standpoint, if a company’s intrinsic value remains stable while its price drops significantly, the “risk” (the probability of overpaying) has actually decreased, even though the “volatility” (the Beta) has technically increased.

For the rational investor, volatility should be viewed as a provider of liquidity and favorable entry points rather than a threat. When the market overreacts to macro-economic data or geopolitical tension, it creates a “Rationality Gap” where high-quality firms are temporarily mispriced. Munger argued that those who can remain stoic during these periods are the ones who capture the “premium of patience.”

In essence, while the academics are busy calculating standard deviations, the Munger-style investor is busy calculating whether the business’s ability to generate cash remains intact.

What really matters for Charlie Munger is to buy the stock when it is underpriced, and selling it when it is overpriced. Source: Elearnmarkets Blog

ROIC, and the dynamics of the “Economic Moat”

For Munger, “Quality” was not a vague descriptor but a quantifiable financial phenomenon centered on one main metric: Return on Invested Capital (ROIC). The formula is elegant in its simplicity:

Munger observed that over a forty-year holding period, a stock’s total return will inevitably converge toward its ROIC. Crucially, for value to be created, this ROIC must be higher than the Weighted Average Cost of Capital (WACC). If you hold a business that earns six percent on its capital for decades—barely matching its cost of capital—you will ultimately earn a six percent return, regardless of whether you bought it at a “bargain” or a “fair” price. Conversely, if a business earns eighteen percent on capital, the positive spread over its WACC creates a compounding effect that will eventually dwarf any initial valuation premium you paid.

However, high ROIC is a magnet for competition, which is why Munger prioritized companies with a “Economic Moat.” This refers to a structural barrier (such as the brand equity of Coca-Cola, the network effects of Alphabet, or the high switching costs of Microsoft) that prevents competitors from eroding those high returns. Without a moat, the spread between ROIC and WACC is merely a temporary state before mean-reversion takes hold. Therefore, analyzing a business involves a deep dive into its competitive advantages to ensure that its high ROIC is sustainable over decades, and not just over a few quarters.

Time Arbitrage and Tax Efficiency

One big advantage that an individual investor has over a professional fund manager is the concept of “Time Arbitrage.” Most institutional managers are constrained by quarterly benchmarks, and the pressure to avoid “tracking error” (falling behind the index), which forces them to react to short-term volatility to protect their career longevity. However, by extending the time horizon to ten or twenty years, an investor exit this hyper-competitive arena where most traders operate, and enters a space where patience is the primary competitive edge.

This long-term orientation also creates a significant (yet often overlooked) financial benefit: tax efficiency. By refusing to sell during volatile periods, the investor avoids triggering capital gains taxes, which allows the “unpaid taxes” to remain within the investment, and compound for free.

As Munger frequently noted, the “big money” is found in the waiting. By minimizing turnover, you maximize the terminal value of your portfolio, by ensuring that the engine of compounding is never throttled by unnecessary friction or tax leakage.

My opinion on this quote

In my view, this quote is a very interesting take on financial rationality. It is a rejection of the “noise” that defines modern electronic trading. What I find most compelling is Munger’s insistence that volatility is not a hazard, but rather the price of admission for superior returns (a concept many students struggle to internalize when they first encounter the volatility-centric models of academic finance).

To me, Munger is arguing that the market is often a theatre of the absurd where prices decouple from reality due to human emotion; therefore, the only logical response for a serious investor is a disciplined focus on the structural integrity of the business (the quality) rather than the erratic pulse of the stock price.

I believe that the “stupidity” Munger refers to is the intellectual laziness of letting a falling price dictate your perception of a business’s value. It is far easier to look at a chart and feel fear, than it is to dig into a 10-K filing to verify the Return on Invested Capital (ROIC), or the durability of a competitive advantage. By prioritizing quality over volatility, we are essentially choosing to be owners of productive assets rather than gamblers on price movements; and this shift in perspective is, in my opinion, the single most important transition a young financier can make.

Why should this quote matter to you

Whether you aspire to work in Asset Management, Private Equity, or Equity Research, Munger’s perspective is a vital toolkit for professional survival. In the institutional world, you will be constantly bombarded with requests to explain “why the market is down today” or “why a portfolio company underperformed this month.”

If you focus on these short-term “wiggles” in the data, you risk becoming a mere weather reporter. Understanding Munger allows you to move beyond superficial queries and focus on the real metrics: the cash flow margins, the structural moat, the capital allocation of management…

The “ROIC” of your career path

This principle transcends stock picking and applies directly to your own professional trajectory. Think of your career through the lens of Investment vs. Volatility:

• Career Volatility: These are the temporary setbacks: a tough performance review, a project that stalls, or a hiring freeze. If you overreact to this volatility, you risk making impulsive “trades” with your career that interrupt your progress.
• Career Quality: This is the compounding value of your technical skills, your network, and your intellectual rigor. These are the assets that generate a high “Return on Invested Capital” (ROIC) for your time and effort.

In finance, the most dangerous mistake you can make is interrupting a compounding process unnecessarily. By prioritizing the “long-term quality” of your professional output over the “short-term noise” of the job market, you ensure that you are building a career that is structurally sound and capable of weathering any economic storm.

Related posts

Quotes

   ▶ All posts about Quotes

   ▶ Hadrien PUCHE “The big money is not in the buying and selling, but in the waiting.” – Charlie Munger

   ▶ Hadrien PUCHE “The market is never wrong, only opinions are.” – Jesse Livermore

Financial techniques

   ▶ Saral BINDAL Historical Volatility

   ▶ Jayati WALIA Capital Asset Pricing Model (CAPM)

   ▶ Youssef LOURAOUI Markowitz Modern Portfolio Theory

   ▶ Youssef LOURAOUI Beta

Useful resources

Kaufman, P.D. (2005) Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger, Third Edition, Virginia Beach, VA: Donning Company Publishers.

Buffett W.E. Berkshire Hathaway Shareholder Letters Omaha, NE: Berkshire Hathaway Inc.

Frazzini A., D. Kabiller, and L.H. Pedersen (2013) Buffett’s Alpha, Working paper.

About the Author

This article was written in February 2026 by Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027).

   ▶ Discover all posts written by Hadrien PUCHE

Financial markets move every second, reacting to every new piece of information, every financial statement, every geopolitical event. Prices rise, fall, move too far, come back again, and for anyone observing from the outside, this constant motion can easily appear chaotic.

Yet, behind this apparent disorder lies a deeper structure, a logic shaped by the continuous exchange between buyers and sellers who negotiate and adjust their positions in real time.

In this article, Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027) explains why Peter Steidlmayer’s quote is so meaningful.

Peter Steidlmayer and the origin of market profile

Peter Steidlmayer

Source : Profile trading

Peter Steidlmayer is known above all as the creator of the Market Profile methodology, introduced at the Chicago Board of Trade in the early 1980s. His goal was both simple and ambitious: to provide market participants with a clearer understanding of where the market was “accepting” value, rather than simply where prices happened to appear on a linear chart.

The quote that defines his philosophy first gained prominence in his seminal work:

“The market is a continuously unfolding process of discovery. Price is not value in itself, but the market’s best guess at a given moment. Only through the passage of time, with sufficient volume at a given range, can value be established.”

— Peter Steidlmayer, Markets and Market Logic: Trading and Investing with a Sound Understanding and Approach (1986).

Until this publication, most analysis focused on time-based charts that displayed the sequence of prices but said little about the intensity of trading at each level. Steidlmayer added a decisive dimension by incorporating Volume at Price, revealing how the market behaves like a continuous auction. Buyers and sellers negotiate, the market explores different levels, and value emerges where transactions cluster and where time confirms acceptance.

The quote takes its meaning directly from this framework. For Steidlmayer, markets discover value in the same way an auction settles a fair price: not through a single print, but through repeated interaction. A sudden spike tells us very little; it is merely a “probe.” But when the market spends time around a certain level with significant volume, it offers a reliable indication of Accepted Value.

To learn more about market profiles, check out this article by Michel Verhasselt on Market Profiles.

The graph below presents Steidlmayer’s market price distribution. The curve is constructed by dividing the trading session into equal time intervals (typically 30 minutes) and recording each price level traded during every interval. Each instance of a price occurring within a given bracket is labeled a Time Price Opportunity (TPO). The distribution is then formed by aggregating the total number of TPOs at each price level across the session, thereby producing a time-weighted empirical distribution of prices. Under conditions of relative balance between supply and demand, this process often yields a bell-shaped profile. In this framework, price discovery exhibits an ordered structure: the central region of the curve (characterized by a high concentration of TPOs) reflects sustained trading activity and temporary equilibrium, commonly interpreted as the market’s most accepted estimate of fair value. Conversely, the tails correspond to price levels traversed quickly, signaling rejection, imbalance, and potential disequilibrium (often associated with emotional trading).

Analysis of the Quote

“The market is a continuously unfolding process of discovery” captures the very essence of Steidlmayer’s thinking. By framing the market this way, he reminds us that it is not a static mechanism but a living process in perpetual motion. Prices are not definitive statements of value; they are temporary judgments, mere snapshots of the market’s collective opinion at one precise moment.

Price reflects the most recent consensus, influenced by news, emotion, and short-term liquidity. It is the market’s best guess, but never its final conclusion. True value, on the other hand, does not reveal itself instantly. It appears gradually through the accumulation of transactions that demonstrate where participants genuinely agree. This requires sufficient volume and visible acceptance to prove that a broad set of participants (and not just a few aggressive traders) concurs on a price level.

This distinction explains why short-term volatility often expresses emotion more than fundamentals. In contemporary terms, price discovery is fast and exploratory, while value discovery is slow, deliberate, and shaped by consensus. This is what Warren Buffet meant when he said “Price is what you pay, value is what you get”.

Understanding that the market is a “continuously unfolding” conversation helps investors remain focused on the durable signal of value rather than reacting to the transient noise of price.

Three Financial Concepts Linked to the Quote

Market microstructure and auction theory

Financial markets operate in many ways like auctions. Buyers raise their bids, sellers adjust their offers, and the market constantly seeks the level at which both sides find balance. This is the essence of Market microstructure, the study of how a market’s participants and their behavior determine the price of an asset. Just like in an auction, participants negotiate in real-time, until the highest price someone is willing to pay and the lowest price someone is willing to sell meet.

Steidlmayer’s vision aligns perfectly with the principles of market microstructure: during periods of uncertainty, the market enters a “discovery” phase, where prices move rapidly and vertically to find new participants. This is the market effectively “probing” for the limits of supply and demand, in a continuously unfolding process of discovery.

When a price is found, the market stops moving vertically and starts moving horizontally, spending more time at a specific level to facilitate the maximum amount of trade. These consolidation areas are visual representation of agreement. It shows that the market has stopped searching and has found a temporary equilibrium where both buyers and sellers are satisfied with the price.

As you can see here, the price moves in a range until a market event causes an auction. When an appropriate price is found, the market resumes moving in a new range again. Source : Jump trading.

Liquidity

Liquidity plays a decisive role in determining whether a price reflects genuine value or merely a temporary distortion. In finance, liquidity is defined as the ability to buy or sell an asset quickly without significantly affecting its price. It is a multi-dimensional concept, analyzed through several key components:

• Tightness: Refers to the cost of a transaction, typically measured by the width of the bid-ask spread.
• Depth: The volume of orders available at various price levels above and below the current market price.
• Breadth: The number and diversity of market participants, indicating a wide range of interests.
• Resiliency: The speed at which prices recover to “fair value” after a large, potentially disruptive trade.

In Steidlmayer’s framework, a price level reached on minimal volume is considered “unfair” or an outlier; it tells us very little because it lacks the support of the broader market. On the other hand, a price level traded repeatedly with strong participation speaks with far more authority. It indicates that a large number of participants have agreed on this price, and that is therefore “fair”.

This is why professional investors rely on measures such as the Volume Weighted Average Price (VWAP), the volume profile, and value area boundaries. These tools help separate the meaningful “signal” of institutional conviction from the surrounding “noise” of retail emotion. In essence, price is the discovery mechanism, but volume is the validation.

Without volume, a price movement is a mere suggestion; with volume, it becomes a confirmed consensus of value.

Market efficiency

The quote also relates to the Efficient Market Hypothesis (EMH), which suggests that asset prices reflect all available information. There are three distinct forms of market efficiency:

• Weak form: Assumes that current prices reflect all information contained in past prices and trading volumes, meaning technical analysis cannot consistently produce excess returns.
• Semi-strong form: Assumes that prices adjust instantly to all publicly available information, such as earnings announcements or economic data.
• Strong form: Assumes that prices reflect all information, including private or insider information, according to which price should always equal value.

Steidlmayer proposes a more nuanced and realistic vision: markets are constantly searching for value, and they do not find it immediately. Because the “process of discovery” is driven by human participants with varying expectations, the market often overshoots or undershoot its true value before settling into a new equilibrium.

We can clearly see the market’s propensity for emotional excess, where price extends far beyond fair value before reverting to the mean. These oscillations prove that price discovery is a non-linear process driven by temporary imbalances in supply and demand. Source: dailypriceaction.com

This concept is essential for students. It explains why markets may be broadly efficient over long horizons, but still display irrational behavior in the short term. These “inefficiencies” are not market failures, but proof that the discovery process is in action.

By understanding that the current price is a search (and not a final answer), an investor can remain calm when the market overreacts, knowing that prices will eventually pull back towards the established value area.

My opinion on this Quote

I believe this quote offers a very accurate description of market behavior. It captures, with remarkable clarity, the difference between instantaneous price and durable value. What I find particularly compelling is the way it reframes volatility as part of the market’s natural process of exploration (rather than a source of confusion).

This perspective encourages patience, and reinforces the idea that investors should focus on context and ranges rather than individual specific prices.

However, it is important to nuance this perspective in the context of today’s modern markets. Steidlmayer’s logic was developed in the 1980s, long before the dominance of High-Frequency Trading (HFT) and algorithmic execution. Today, the “process of discovery” often happens in milliseconds, particularly on large cap stocks. While the fundamental principles of auction theory still apply, the transition from price to value is now much faster.

Despite this technological shift, the core lesson remains: the market is a conversation, and even if that conversation is now partly led by machines, the ultimate consensus still requires time and volume to establish true value.

Why should this quote matter to you ?

This quote is a good way of adding an additional level of complexity to your understanding of how markets truly function. Understanding the market’s process of discovery helps better understand markets movements, distinguish noise from genuine information, and avoid reacting impulsively to volatility. It teaches you to appreciate the essential roles of time, liquidity, and volume in revealing value, in order to make better decisions.

Ultimately, this quote conveys a profound lesson. The market is more of a conversation than a verdict, a continuous exchange of perspectives that gradually converges toward value. For any student who hopes to approach markets with discipline and understanding, mastering this idea is both a practical and an intellectual advantage.

Related posts

Famous quotes about valuation

   ▶ All posts about Quotes

   ▶ Hadrien PUCHE “Price is what you pay, value is what you get” – Warren Buffett

   ▶ Hadrien PUCHE “The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Philip Fisher

Other famous quotes

   ▶ Hadrien PUCHE “The big money is not in the buying and selling, but in the waiting.” – Charlie Munger

   ▶ Hadrien PUCHE “Don’t look for the needle in the haystack. Just buy the haystack.” – John C. Bogle

About market profile

   ▶ Michel VERHASSELT Market profiles

   ▶ Michel VERHASSELT Difference between market profiles and volume profiles

   ▶ Michel VERHASSELT Trading strategies based on market profiles and volume profiles

   ▶ Raphael TRAEN Volume-Weighted Average Price (VWAP)

Useful resources

Steidlmayer P.J. and K. Koy (1986) Markets and Market Logic: Trading and Investing with a Sound Understanding and Approach, Porcupine Press.

Steidlmayer P.J. and S.B. Hawkins (2003) Steidlmayer on Markets: Trading with Market Profile, John Wiley & Sons, Second Edition;

TPO versus Volume Profiles

Trader Dale Volume Profile vs. Market Profile – What Is The Difference? YouTube video

About the Author

This article was written in February 2026 by Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027).

   ▶ Discover all articles by Hadrien PUCHE

Financial markets move with a constant rhythm, shaped by news, expectations, and the psychological impulses that influence investors every day. Prices advance, decline, accelerate suddenly, or pause without warning, and to the untrained observer this flow can seem arbitrary or even irrational. This can make it hard for investors to resist the urge of buying or selling their positions quickly.

This quote from Warren Buffett is a warning against it: markets reward those who remain disciplined and focused, while those who act hastily often pay a price for their impatience. The market is not hostile, but it is unforgiving towards impulsive behavior.

Patience allows an investor to benefit from the long-term effect of compounding, and from the natural tendency of solid businesses to grow over time, while impatience often leads to emotional decisions and unnecessary losses.

For students discovering finance, this idea is essential: long term thinking matters far more than reacting to every fluctuation, and why understanding the difference between noise and fundamentals is the foundation of intelligent investing.

About Warren Buffett and the context around this quote

Warren Buffett

Source : Forbes

Warren Buffett, often referred to as the Oracle of Omaha, is widely considered one of the most successful investors in history. His approach, inspired by Benjamin Graham and refined over decades, rests on a simple yet profound principle: invest in high quality businesses, pay a fair or attractive price, and allow time to do the work.

Buffett always emphasized the behavioral dimension of investing. He understood that markets are driven not only by numbers and earnings reports but also by the emotions of millions of individuals. His quote emerges from this observation. In his view, wealth tends to move from those who chase quick gains toward those who maintain a steady and patient perspective. Investors who panic in downturns or who jump rapidly from one trend to another often lose sight of the enduring value behind the companies they own, while patient investors remain focused on long term fundamentals and benefit accordingly.

The quote therefore illustrates a philosophy that has guided Buffett’s entire career: patience is not a passive posture but an active discipline that allows value to reveal itself over time.

Analysis of the quote

When Buffett says that the market transfers money from the impatient to the patient, he is not describing a mechanical rule but rather a behavioral reality. Impatient investors tend to react to fear, enthusiasm, fashionable narratives and short-term price movements. They buy when something is rising, they sell when it is falling, and they allow emotion to replace judgment.

Patient investors do the opposite: they base their decisions on analysis, intrinsic value, and long-term expectations. They endure volatility, because they understand that markets move in cycles, and that temporary declines often have little to do with the underlying quality of a business.

This distinction explains why timing the market is so difficult. Prices fluctuate for countless reasons, many of which are unrelated to value. Without patience, investors risk entering at euphoric peaks and exiting at fearful lows. With patience, they allow compounding, earnings growth, and valuation discipline to work slowly but steadily in their favor.

Financial concepts linked to the quote

To understand why the market favors the patient, we must look at the structural and psychological mechanics that reward those who remain calm.

Compounding: why time is your most important asset

The most powerful tool available to an investor is compounding, a process where the returns on your capital begin to earn their own returns.

However, compounding is not a linear process; it is exponential. In the early stages, progress often feels slow and invisible, which is where many “impatient” investors make the mistake of quitting or changing strategies. To benefit from the “snowball effect,” an investor must possess the patience to endure these quiet early years so that the math can eventually reach its explosive later stages.

As you can see on this graph, compounded interest becomes trully impressive only after quite a long time.

To better understand the power of compounding, download this excel file and try to play around with the interest rate.

Every time an investor reacts to market volatility by selling or switching positions, they effectively stop their compounding clock. This “stop-and-go” approach is costly; by exiting the market out of fear, you don’t just avoid potential losses : you also forfeit the most explosive days of growth that often follow a downturn.

Since the market is nearly impossible to time perfectly, the most reliable path to wealth is not “timing” the market, but maximizing your time in the market.

The hidden cost of action bias

In nearly every aspect of life, effort correlates with reward: working harder, studying more, or practicing longer typically yields better results. However, the stock market operates under a different logic: it punishes excessive activity.

This counter-intuitive reality is best captured by the action bias, a powerful psychological urge to react to every market fluctuation or news headline by adjusting one’s portfolio.

The consequences are financially tangible : each impulsive trade incurs friction costs : brokerage fees, commissions, capital gains taxes… . Over time, these small deductions compound themselves into a significant drag on returns.

Studies, such as the landmark research by professors Brad Barber and Terrance Odean titled “Trading Is Hazardous to Your Wealth,” consistently show that the most active investors typically underperform simpler strategies. By analyzing thousands of accounts, they discovered that the most frequent traders earned significantly lower returns (by a margin of several percentage points) than those who simply stayed the course.

Source: Barber, B. M., & Odean, T. (2000).

This happens because attempts to “time” the market or avoid perceived risks often lead investors to miss crucial recovery periods. In doing so, they effectively turn off their compounding engine at precisely the wrong moment, proving that in the market, activity is often the enemy of performance.

Patience, therefore, isn’t just about waiting; it’s the profound discipline of knowing when to do nothing. It means resisting the innate human desire to act when faced with uncertainty, and trusting the long-term compounding process.

For students, understanding action bias is crucial. True control in investing often comes from emotional restraint, not constant intervention, and you should always remain calm when others panic.

Diversification: don’t put all your eggs in the same basket

Patience is not merely a test of willpower; it also requires a properly structured portfolio, as it is far easier to remain calm when your entire financial future does not depend on a single outcome. This is where diversification (the practice of spreading investments across various companies, sectors, geographies, and asset classes) becomes a psychological necessity.

By ensuring you aren’t “putting all your eggs in one basket,” you replace the high-stakes anxiety of gambling with the steady reliability of participating in global economic growth.

Diversification therefore is important as an emotional safety net. If you concentrate your wealth into a single “trendy” stock and its price collapses, your natural instinct will be fear, which often leads to selling at the worst possible time. On the other hand, by diversifying your portfolio through an index fund, the failure of one company can be offset by the success of others. This limits the risk of a permanent loss of capital, and helps view market storms as temporary noise rather than a disaster.

Increasing the number of securities in a portfolio reduces unnecessary risk, limiting the risk of excessive fear for the investor

The arithmetic of active management (Sharpe’s Law)

While Buffett focuses on the behavior of the investor, Nobel Laureate William Sharpe focuses on the math of the market. In his paper The Arithmetic of Active Management, Sharpe presents a simple, undeniable logic:

• Before costs, the average active manager must earn the same return as the market (the passive benchmark). The market return is the average of all manager’s returns, so it makes sense that the average manager’s return must be the market return.
• After costs (management fees, trading commissions, bid-ask spreads), the average active manager must underperform the average passive manager, because they have to bear higher costs.

This is not a matter of opinion, but a mathematical certainty. Passive investors hold the market at a very low cost, when active investors, as a group, hold the same stocks but pay high fees to analysts, traders, and managers who try to “beat” each other.

The impact of fees: the “silent killer” of compounding

Fees are the ultimate enemy of the patient investor. If the market returns 7% and an active fund charges 1.5% in fees, the investor only keeps 5.5% every year.

But over 30 years, that 1.5% difference doesn’t just reduce your return by 1.5%: that lost money is never allowed to compound, and because of this, your final wealth will by much lower.

As Sharpe argues, active management is a “zero-sum game” before costs, but a “negative-sum game” after costs for the participants involved.

My opinion on the quote

I believe this quote captures one of the most essential truths in investing: behaviour matters just as much as analysis. Patience is not a simple virtue, it is a true competitive advantage. In a world where information circulates instantly and where impatience is encouraged by constant market noise, choosing to remain calm and long term oriented becomes a rare and valuable discipline.

Buffet’s perspective also helps reinterpret market volatility. Rather than seeing it as a threat, patient investors see it as an opportunity to accumulate quality assets at reasonable prices. Impatient investors, on the contrary, allow volatility to dictate their actions, which often leads to regret. For students, understanding this psychological dimension is essential because it prepares them for the realities of financial markets where noise is constant and conviction must be earned.

Why you should care about this quote

This quote is about avoiding impulsive reactions to short term movements, being able to distinguish between emotion and information, and to appreciate the slow and steady nature of compounding. It emphasizes the importance of discipline, valuation, and long term thinking, and it reveals why the greatest investors often seem remarkably calm in the face of market turbulence.

Ultimately, Buffett’s quote reminds us that markets reward patience not by coincidence but by design. They favor those who stay focused while others are distracted, those who think in years rather than in minutes, and those who allow value to express itself with time. For any student aspiring to navigate markets with intelligence and serenity, this is a principle worth integrating into your financial education.

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   ▶ Hadrien PUCHE “Price is what you pay, value is what you get” – Warren Buffett

   ▶ Hadrien PUCHE “Patience is bitter, but its fruit is sweet.” – Aristotle

   ▶ Hadrien PUCHE “The big money is not in the buying and selling, but in the waiting.” – Charlie Munger

Asset management

   ▶ Youssef LOURAOUI Active investing

   ▶ Youssef LOURAOUI Passive investing

Useful resources

Academic research

Barber, B. M. & Odean, T. (2000) Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. The Journal of Finance, 55(2), 773–806.

Barberis, N. & Thaler, R. (2003) A Survey of Behavioral Finance. Handbook of the Economics of Finance, 1B, 1053–1128.

Odean, T. (1999). Do Investors Trade Too Much? The American Economic Review, 89(5), 1279–1298.

Sharpe, William F. (1991). The Arithmetic of Active Management. Financial Analysts Journal, 47(1), 7–9.

Business resources

Buffett W.E. Berkshire Hathaway Shareholder Letters Omaha, NE: Berkshire Hathaway Inc.

Schroeder A. (2008) The Snowball: Warren Buffett and the Business of Life. New York: Bantam Books, 2008.

About the Author

This article was written in February 2026 by Hadrien PUCHE (ESSEC Business School, Grande École Program, Master in Management, 2023-2027).

   ▶ Discover all posts by Hadrien PUCHE