From 1990 to 2018, over nearly 28 years, the global stock market research sample included about 62,000 listed companies.

Guess which companies truly created massive wealth for shareholders during this period?

The answer is only five:Apple, Microsoft, Amazon, Alphabet (Google's parent company), and Exxon Mobil.
These five companies, less than 0.01% of the 62,000 firms, contributed about 8% of global net wealth creation in the stock market.

Looking at a wider sample, about 811 companies — just 1.3% of the total — explain almost all of the major wealth creation in global equities.
The vast majority of the remaining companies didn't completely fail to rise, but over the long run their contribution to overall wealth creation was very limited.

Doesn't that sound a bit harsh?
What it really tells us is two very realistic things.
First, picking the right stock is truly, truly important.
Second, picking the right stock is truly, truly difficult.

From more than 60,000 companies, finding those super-winners is not just hard — it's almost a low-probability event.
Every year-end, analysts from every brokerage seem to say the same thing: "Next year is the year of stock picking!"
If you hear it long enough, you realize they say it every year. Doesn't that mean every year is the year of stock picking? Does that sentence even sound like a sentence anymore?

Does ordinary trading really work? Why is long-term holding so hard?

Today let's talk about two things many people overlook, yet they can badly affect the real money in your pocket.
First, does ordinary trading really work? Why is long-term holding so hard?
Second, the things many people never seriously calculate when investing — taxes and transaction costs.
Once you understand these, you may suddenly realize that you might have been busy for years for nothing.

Let's start with a surprising real-world comparison, a classic example from the book How Not To Invest.
Imagine that in 2000, two people each put in $10,000 — around NT$300,000+ at the time — and started investing.

The first person is a genius-level investor.
He actively buys and sells every year, and not randomly — he really beats the market by 4% every year.
Do you know how absurd that is? Most professional fund managers in the world can't even beat the market on average over the long run. Someone who can beat it by 4% before tax for 24 straight years is almost mythical.
But let's assume he really exists.

The second person? He knows nothing.
He just dumps all the money into an index ETF and does nothing.
No checking, no analysis, no trading — just lets it sit there.

After 24 years, by 2024, what happens?
That genius investor's $10,000 grows to about $691,000 — almost 70x, which already sounds amazing, right?
But the ordinary person who did nothing ends up with about $760,200, which is actually about 10% more!

The person who did nothing beats the genius who outperformed the market by 4% a year.
This doesn't mean skill is useless. It strongly reminds us of one thing: in the end, investing is not about the headline return, but the money that actually remains in your pocket after taxes, fees, and all kinds of trading friction.

Taxes and transaction costs: the brutal power of compounding drag

The problem lies in transaction costs and taxes.
The genius investor buys and sells every year. Every time he sells, he may trigger tax; every trade incurs fees, bid-ask spread, and even transaction tax.
These costs may seem small each time, but they have a terrifying compounding effect.

If you make $100 and don't touch it, that $100 can continue working for you next year.
But once you sell, tax and fees take a cut first, your principal shrinks, and the compounding chain is broken.
A little difference each year becomes a big gap after 24 years.

By contrast, the ordinary person who did nothing keeps most of his money in the market, and compounding runs more completely for 24 years.
That's why he wins in the end.

Speaking of compounding, everyone has probably heard Benjamin Franklin's classic line:
Money makes money, and the money made by money makes even more money — that's the power of time and compounding.
But the premise is that you can't keep pulling the money out in the middle. Every time you do, the magic of compounding breaks.

At this point you may think: Taiwan doesn't even have a capital gains tax on stocks, so selling stocks for profit isn't taxed. Frequent trading should be fine, right?
Not that simple.

Transaction costs in the Taiwan market

In Taiwan, the securities transaction income tax on personal trading of domestic listed stocks and domestic ETFs is currently suspended, which is indeed a big advantage for Taiwanese investors compared with many other markets.
If you buy TSMC at 100 and sell at 200, the NT$100 profit in between is usually not subject to securities transaction income tax.
But that doesn't mean frequent trading has no cost.

First, there is the securities transaction tax.
Every time you sell a stock, the government charges 0.3% of the transaction amount — profit or loss doesn't matter; as long as you sell, you pay.
If you trade ETFs, the rate is usually 0.1%, but you still pay on the sale.
The current stock transaction tax has a reduced rate of 0.15%, extended through the end of 2027.

Then there are brokerage fees.
On the buy side, brokers may charge up to about 0.1425%, and they charge again when you sell.
Many brokers give discounts, but even after discounts, once you add transaction tax, the total cost of a full round-trip trade can still be around 0.35% to 0.5%.

0.5% sounds small? Let's do the math.
Suppose you trade 50 times a year, and each time you put nearly all your capital in and out. 0.5% times 50 trades means transaction costs alone can eat nearly 25% of your money in a year.
Your annual return might only be 10%, yet more than half of your effort gets swallowed by these invisible frictions.

Look at it another way and it becomes clearer.
You have NT$1 million in stocks.
If each round-trip trade has total friction of 0.5%, that's about NT$5,000 per trade.
Do that 50 times a year, and NT$250,000 is gone.
Your principal is only NT$1 million. In one year, these invisible trading frictions can already take away a quarter of it.

Even if your stock-picking skill is decent and you make NT$300,000 on your choices, after these costs only a small portion truly stays in your pocket.
But if you do nothing and put the NT$1 million into a low-cost market-cap ETF, and the market returns about 8% to 10% a year, you'll end up with NT$1.08 million to NT$1.10 million.
At least you won't keep entering and exiting and hand over a big chunk of the return that should have been yours.

That's why many frequent traders, even if they have decent stock-picking ability, often end up with actual returns that lose to those who buy and hold.
It's not that every judgment is wrong — it's that costs quietly bleed you dry in the background like a hidden faucet, slowly draining away the advantage of compounding.

Active investing vs. passive investing

This leads to a very important concept — the difference between active investing and passive investing.

• Active investing means you pick stocks yourself. If it looks good, you buy; if it seems near the top, you sell. Or you hand the money to a fund manager and let him do it. The core idea is: "I have a chance to beat the market."

• Passive investing means buying an index product that tracks the market. The core idea is simple: "I admit that beating the market over the long run is really hard, so I'll stand on the same side as the market."

Put simply, active investing is like desperately searching for a needle in a desert; passive investing is saying, 'I'm too lazy to look, so I'll just buy the whole desert — the needle is probably in there somewhere.'

Active investing is indeed more exciting.
If your TSMC position rises 30% while the market only rises 10%, that kind of thrill is like a dopamine explosion — a joy passive investing can never give you.
But if the stock you bought drops 40% while the market still rises 10%, that kind of pain is also something passive investing is less likely to subject you to.

What about handing money to an active fund? That doesn't mean you automatically win either.
Active funds charge annual management fees, usually around 1%.
Your fund manager has to beat not just the market, but the market plus the fee he charges you.
If you're down 1.5 percentage points per year, over 20 years the cumulative gap can become huge.

In fact, many global long-term studies — such as SPIVA reports — repeatedly show that most active funds struggle to beat their benchmarks consistently over time.

So why do so many people still insist on active investing? Two words — thrill.
The human brain is wired to love stimulation. When a stock you bought hits limit-up, the rush is about the same as winning money in a casino.
Passive investing is too boring. Buying 0050 on a fixed monthly schedule and seeing it rise 3% feels too dull to even post in a group chat.

But the essence of investing is not to seek excitement; it's to make your money truly grow.
If a boring method has a better chance of helping you keep your returns, then you'll have to learn to tolerate boredom.
At the very least, you need to understand the logic behind it so you can avoid the invisible traps.

Hidden tax traps: dividend investors and overseas investing

Dividend stock investors should pay special attention. If you've accumulated a lot of high-dividend ETFs and the annual distributions are large, the tax effect becomes especially obvious.
Suppose you hold NT$5 million of high-dividend ETFs with a distribution yield of about 5%; you'll receive NT$250,000 in distributions a year.
If you choose separate taxation at 28%, the tax burden is very noticeable.
But if your comprehensive income tax rate is lower, switching to combined taxation plus the 8.5% dividend tax credit can reduce your actual tax burden a lot.
So dividend investors should never be lazy — you must know exactly what kind of income your payout belongs to, or you'll quietly overpay a lot of unfair tax every year.

Next is the tax side of overseas investing.
If you buy U.S. stocks, VT, VOO, or other overseas ETFs, the gains you make when selling usually involve foreign income and the minimum tax system in Taiwan.
Overseas income below NT$1 million per year usually doesn't need to be included. Only amounts above NT$1 million must be counted, and even then it depends on whether the basic income amount exceeds NT$7.5 million.
Small investors may not actually be taxed, but once the amounts get large, you need to be very careful.

Also, U.S. stock dividends are usually withheld at 30% by the U.S. first, and that money is hard to get back.
That's one reason many people prefer growth or low-dividend names when buying U.S. stocks.

Here's another thing many people mix up: overseas ETFs issued by Taiwan-based asset managers, such as Cathay 00830 and Yuanta 00646.
Even though they invest in foreign stocks, because they are listed in Taiwan, their capital gains are usually treated like domestic ETFs, which makes tax filing much easier.
But the dividend portion still depends on the source of income.

You don't need to become a tax expert, but you should at least know how much of every dollar that comes in may be taken away.
People who don't know think they earned 10%, but after taxes, fees, and transaction costs, they may only keep 6% or even less.
Those who understand factor costs in from the start and make calmer decisions.

Why do long-term holders often earn more than frequent traders?

Back to the original question: why do long-term holders often earn more than frequent traders?

1. Transaction costs. Every trade has a cost. The fewer the trades, the lower the cost.

2. Integrity of compounding. If your money stays obediently in the market, compounding can fully do its job. Benjamin Franklin said money makes money, but only if you don't keep pulling it out of the nest. Every time you do, the magic breaks.

3. Psychological factors. Frequent trading forces you to keep making decisions, and every decision is a chance for emotions to get involved. You buy, it falls, and you regret it; you sell, it rises, and you get anxious. Long-term holders don't avoid volatility — they just avoid many of the chances to torture themselves.

4. Time. Time is the strongest weapon, but it only helps those willing to stay in the game.

Does that mean you can never sell a stock? Of course not.
If a company's fundamentals really worsen, or you need the money urgently, selling is completely reasonable.
But if you're only trying to guess short-term moves and chase hot stocks, you're basically gambling against the market.
And in the long run, market guessers often lose to the ordinary person who does nothing.

A better investment strategy is often not the most exciting one, but the one you can stick with for the long haul.
Buy low-cost index ETFs regularly, check the market less, switch stocks less, and let time and compounding work for you.

Sounds too simple? Then why can't most people do it?
Because it's boring. Because they can't resist checking the market. Because the colleague next to them brags that he made 30% again on TSMC last month, and you start getting restless.

The biggest enemy of investing has never been market declines; it's your own uncontrollable hand.
Every trade has a cost. The lower the cost and the longer the time horizon, the greater the chance your returns can remain intact.
The best investment is often the one that keeps you from acting impulsively.
That little bit of patience, over 20 or 30 years, becomes a whole world of difference.