Being a Patient and Wise Investor

Posted on by

“You don’t make money when you buy a stock, you don’t make money when you sell a stock, you make money by being patient and you make money by waiting.” Charlie Munger

Successful investing in stocks and building wealth does not have to be a complex or difficult personal financial enterprise. Focusing on a few “tried and true” investing rules and behaving rationally is effectively what it takes. And, keep in the forefront that, “Every investment is the present value of all future cash flow.” The rules or universal investing laws to follow are:

  1. Think and hold for the long-term, view investing as a compounding program
  2. Create and follow a plan
  3. Invest early and consistently, be discipline
  1. Buy what you understand and do your research
  1. Understand that when you buy a stock, you’re purchasing a portion of an existing business
  1. Maintain an emergency fund
  2. Save more than you spend
  3. Track your income and expenses, and calculate your net worth regularly
  4. Pay attention to how much you pay for assets, buy with a margin of safety
  5. Have a healthy contrarian view and don’t follow the crowd
  6. Don’t predict or time the market
  7. Behave rationally and ignore the financial market noise
  8. Practice investing risk management
  1. Be patient, Be patient, Be patient.

Given the above investing rules, many successful investors repeatedly proclaim that the most important virtue with respect to long term investing is ‘patience’. As a tree takes time to grow, similarly investing will also take time to grow and build wealth. So, stay patient! Essentially, you should think of investing as a long term compounding system.

In contrast, impatient investors let anxiety and emotion rule their behavior and decision-making. They often succumb to the ever present tendency towards “doing something”.

Investing is the practice of leveraging one’s patience and exploiting the market’s impatience when it comes to seeking long term value. As Warren Buffett explained, “The stock market is a device for transferring money from the impatient to the patient.”

“Investing is one of the only fields where doing nothing — sitting, being patient — is a competitive advantage.” Motley Fool

Nothing should be a rush or expedited with respect to investing. If there isn’t a good investment opportunity now, there will be a better one in the future. It’s just a matter of believing that there is a great investment around the bend.

Thus, it’s essential that you have patience and inherently understand that opportunities exist as long as you’re not buying assets just for the sake of being in an investment or succumbed to the “fear of missing out”.

Here are three quotes that express concisely the sentimant of a being patient investor:

“We agree with Warren Buffet’s observation that the stock market is designed to transfer money from the active to the patient. By only swinging at fat pitches and avoiding curveballs thrown far outside the strike zone, we attempt to compound your capital at an above average rate while incurring a below average level risk. In investing, patience often means the accumulation of large cash balances as we wait to purchase ‘compounding machines’ at valuations that provide a margin of safety.” — Chuck Akre

“The single most important skill set that you can bring to value investing is patience. You have to have a temperament where you’re very happy watching paint dry. I would say that is the most difficult thing for investors and you can trade lot of IQ points for patience. You don’t need a lot of IQ points but you need a lot of patience. That’s the piece that usually gets missed.” — Mohnish Pabrai

And finally…

“The key rules are don’t swing the bat unless it’s a slow pitch right down the middle of the plate, and don’t be bullied by the market into doing something irrational, whether buying or selling. This may sound obvious or clichéd to some, and perhaps confusingly ironic to others, but the ability to sit and do nothing may be the most rare and valuable investing skill of all. Inevitably, extreme price dislocations occur that create real opportunities for action, and only the patient and prepared investor can recognize such ideal situations and take full advantage.” — Chris Mittleman

Patience and discipline are the keys to successful investing and building wealthy through the magic of compounding. Thus, a key takeaway…investing in stocks is a long term game of patience, patience, patience!

References:

  1. https://www.nasdaq.com/articles/why-patience-is-crucial-in-long-term-investing
  2. http://mastersinvest.com/patiencequotes
  3. https://pranav-mahajani.medium.com/richer-wiser-happier-how-the-worlds-greatest-investors-win-in-market-and-life-by-william-green-c907a3396faa

Advertisements