Why did Naval propose "don't frequently trade"?

Okay, let's talk about this topic.

Imagine this: do you want to be a patient orchardist planting fruit trees, or a jittery gambler in a casino?

Naval’s advice to "avoid frequent trading" essentially boils down to choosing the former over the latter. He emphasizes this based on several simple yet profound principles:

1. Trading Costs: The House Always Wins

This might be the most straightforward point. Every buy or sell order costs you money.

Fees: Like paying an entry fee at a casino, every trade incurs a brokerage commission. The more you trade, the more "entry fees" you pay to your broker.
Taxes: If you make a profit, congratulations! But you also owe taxes (e.g., capital gains tax). Frequent trading means you lock in profits—and trigger tax bills—more often. This is money that could have stayed invested, continuing to compound, but you've handed it over prematurely.

Frequent trading is like constantly folding and drawing new cards in a card game with a rake. Even if your luck and skill are decent, the rake alone can slowly bleed you dry.

2. Information Disadvantage: Amateurs Versus Pros

When you decide to engage in short-term trading, who are you up against?

Not your neighbor Mr. Wang, but professional institutions on Wall Street armed with elite talent, the fastest fiber optics, the most powerful computers, and privileged market information. They wage war at the microsecond level.

Trying to beat them consistently in the short term using the candlestick charts on your phone app is like an amateur basketball player challenging LeBron James to a one-on-one during the NBA finals. You might get lucky and score occasionally, but long-term, the outcome is predetermined. The news you see has likely already been digested and acted upon by them, leaving you the "picked over leftovers."

3. Trading Noise, Not Value

Short-term market movements are mostly "noise," not meaningful "signals."

Noise: Examples include a random comment by an influencer, an unverified rumor, or a fund manager adjusting their portfolio for quarterly reporting... These cause short-term price fluctuations but have little to do with the company's intrinsic long-term value.
Signal: Real signals involve developments like a company creating a revolutionary new product, consistently growing profitability, or its industry experiencing massive growth opportunities. These factors determine long-term value.

Frequent traders often chase noise, attempting to predict the next tick up or down. This is similar to flipping a coin – filled with randomness. Naval advocates identifying genuine "signals," holding long-term, and letting the value manifest.

4. Missing the Real Magic: Compound Interest

Einstein reportedly called compound interest the eighth wonder of the world. Its power lies in "snowballing," and it requires time to work.

Long-term Holding: Like rolling a snowball, you need a long, wet slope. Your principal is the snowball, and time is that long slope. If you've chosen the right company, time will help your snowball grow bigger and bigger.
Frequent Trading: Frequent trading is like constantly stopping on the slope, breaking the snowball apart, and restarting. Every trade carries costs and potential errors that disrupt the compounding process.

Truly significant wealth is almost invariably built through long-term holding of quality assets, allowing compound interest to work its magic.

5. Massive Psychological Drain

This point is often overlooked. Frequent trading is mentally exhausting.

You must constantly monitor the market, your emotions riding the rollercoaster of red and green candlesticks. You fear missing out on gains and dread being caught in losses. A little profit today brings smugness; a small loss tomorrow causes sleepless nights. This constant anxiety and pressure represent a huge, invisible cost, impacting your life, work, and health.

Long-term investing brings peace of mind. You are buying a piece of "ownership" in a company you've thoroughly researched and believe in. You focus on its trajectory over the next three to five years, not its stock price tomorrow at 10 AM. You can close your laptop and focus on your work, your life, and your family.

Summarizing Naval's Core Idea

Naval is more of an "owner" than a "speculator."

He invests in a company because he believes it intrinsically creates significant value. He buys a share of its future cash flows, a piece of its "ownership." Then, he trusts time, letting the excellent business work for him.

Therefore, when Naval says "don't trade frequently," he's really saying:

Stop gambling, start investing.
Stop fighting an information war against professionals with superior firepower.
Spend time finding true value, then give it sufficient time to grow.
Enjoy the peace compound interest brings, rather than being exhausted by market noise.

Ultimately, being a patient orchardist, planting a few good trees, and patiently waiting for the harvest is far easier and more effective than nervously guessing the next card inside a casino.