Why Halal Investors Should Think in Decades, Not Days

Most online financial resources convey a sense of urgency. News about quarterly earnings, interest rate decisions by central banks, current events around the world that can potentially affect the market, and the latest musings by a market guru on how the market’s short-term performance. It creates the false impression that in order to be a good investor, one has to be constantly monitoring the market.

For long-term halal investors, that impression is expensive.

The Short-Termism Trap

The bad effects of short-termism are so deeply ingrained into our system that you might not even realize it’s hurting you. Sometimes the way in which your short-termism affects you will not even seem obvious in the moment, although in retrospect it will clearly lead to pain in the long run.

Checking your portfolio every day and getting depressed on the days when it falls in value. Waiting for a correction to invest in a stock, waiting for confirmation that the stock has reached a bottom to buy it, waiting for a stock that’s been flat to go up in value. Then there’s the constant switching between stocks that are performing well in a sector that’s recently gotten a lot of press. Yes, these activities appear to be highly active and therefore, must be good for your portfolio. However, they may actually be causes of much damage. In the long run, these activities have often underperformed a simple, patient buy-and-hold approach.

But data does exist which supports the above point. Frequent traders tend to underperform less frequent traders. Why? Activity itself is the problem. Every exit from a stock is a complete reset on your analysis. Every re-entry into a stock is another decision with the potential to get the timing wrong. A long-term investor who avoided reacting to short-term dips may have fared better than those who tried to time each of them. Though always remember that individual results vary.

Why This Hits Halal Investors Harder

Short-termism imposes an additional penalty on halal investors not factored into advice for other investors.

This approach hits halal investors particularly hard, because the halal investing universe is by definition smaller than the universe of the broader market. In other words, a number of sectors in the market are by definition non-Shariah-compliant (conventional finance, some consumer sectors, highly leveraged companies etc.). Therefore, by also being a short-term investor, the halal investor is in effect contracting an already-constrained set of opportunities even further. The math behind long-term wealth creation through halal investing is designed to make money from a full market cycle by investing in fully compliant assets throughout. As opposed to that, by trying to time the market, the halal investor is effectively rotating between a very small number of often highly overlapping sets of opportunities.

Shariah compliance also costs. If a halal investor is a short-termist then he will be screened repeatedly for non-Shariah-compliance (i.e. for involvement in sectors or activities prohibited by his religion). For each new purchase he will need to verify that the investment complies with his rules. He will be constantly monitoring every holding to ensure that it remains compliant. It is a lot of work for poor returns. He is doing more work than a conventional investor trying to make similar returns in the market. And he is getting worse returns.

Short-termism and halal investing are a bad mix.

Reframing Your Relationship With Market Noise

First, one must recognize that there is a shift in mindset from what is presented by the media as relevant information and what is actually noise in the markets.

Most of the information put out by the financial media is not relevant for the long-term investor. Thus a stock can suddenly drop on a bad macro head-line. This is no buying signal but just a lot of noise which has no relevance for the investor in the long run. And when a stock finally reports and has a weak quarter, but is still a fundamentally sound and compliant company, then this weak quarter is no reason to sell the stock. Every stock has up and down periods and a holding period of several years is part of this.

For a long-term investor, volatility is not a risk. Loss of Capital is risk. And the only way to achieve the kind of returns that allow for true compounding over long periods of time is to accept the volatility as the price of admission. People who misunderstand this concept react to the volatility as if it were a risk. Those who get it, sit through the ups and downs and that is where wealth is made.

What a Decade-Level Mindset Actually Looks Like

Thinking in decades to come does not have to translate to being uninformed or passive. By making fewer quality decisions, the investor can simply get out of the way and allow the decades to unfold in the desired manner.

Choosing a well-constructed halal portfolio that is aligned to an individual’s risk profile and investment objectives, and then allowing it to remain on track and move forward even when the markets fluctuate. This means sticking to a schedule of contributing to a portfolio ‘on time’ and allowing time for the chosen investments to grow, rather than allowing fear or uncertainty of the markets to cause one to put off investing ‘until the right time’ to do so. In addition to choosing the right portfolio, this mindset also requires one to allow their chosen portfolio to remain on track, by means of rebalancing as required on a scheduled basis rather than when the media make their fluctuations known. Also, tracking of growth on an annual basis, rather than on a weekly basis.

A decade-level mindset does not mean having to monitor every single headline while the investor with a portfolio tailored towards a decade-level mindset does not need to monitor the markets. Instead, he needs a portfolio which remains on track without his intervention, wherein the Shariah compliance monitoring, the systematic rebalancing and the above all the diversification are being carried out by a systematic and computerized process on an ongoing basis, without the need for the investor to decide on a case-by-case basis.

This is not ‘lazy’ passive investing. This is the most demanding form of investing – disciplined investing, where the investor has a portfolio that stays on track, with an excellent and robust compliance monitoring and Portfolio Rebalancing & Diversification system that runs automatically in the background without the investor having to manually intervene for every decision. The investor needs to have trust in the system and remove all the exit ramps to allow the compounding to grow to its full potential.

The Wealth Is in the Waiting

Decades of investing in halal, well-diversified assets, through all market cycles, noise, and temptations to act, as if acting is productive, is what builds long-term wealth. And that waiting is the mechanism. Not the perfect time to invest. Not the best performing sector in a quarter. The waiting.

This is far harder in a world where each day appears to need to be acted upon but for the halal investor seeking to build real wealth over real time this is far more valuable than any number of tactical investment decisions made along the way.

Building a Portfolio Designed for the Long Game

Musaffa's Ready-Made Halal Portfolios are designed for the long game. They are continuously screened for Shariah compliance and rebalanced. Diversified across various types of assets. And purification tracked transparently in the background. No need to keep making decisions.

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Disclaimer: The content is for educational purposes only and is not a substitute for personalized advice from Musaffa. It does not constitute fatwa, legal, or tax advice, an offer, or a solicitation to buy or sell any security or investment strategy. The information is believed reliable as of publication date but may not reflect recent changes, and Musaffa does not guarantee its accuracy, completeness, or timeliness. Musaffa's Shariah compliance screening is based on AAOIFI Shariah standards. Any methodologies or assessments presented are for informational purposes only and should not be relied upon as the sole basis for any investment decision. It is important to conduct your own research or consult with a financial advisor or tax professional before making any investment decisions. All investments involve risk, and the value of securities and other investments may fluctuate due to market conditions, economic factors, or other external influences. Content may include historical or hypothetical data. Past performance is not indicative of future results. The views expressed are those of certain Musaffa personnel as of the publication date, are for informational purposes only, and may change without notice. They may differ from views of other areas of the firm, and any forward-looking statements are not guarantees and may not come to pass. Logos, brand names and external links are used for identification only and do not imply endorsement. For additional information and statements, see our disclaimers: https://musaffa.com/disclaimer