“The stock market is a device to transfer money from the impatient to the patient.” — Warren Buffett
Patience is ofter referred to as the most underused investing skill and virute. And, learning patience could help you reach your financial goals of wealth building and finacial freedom.
Be extremely patient when investing in assets and wait until you can buy an investment at an entry price when everybody else hates the investment or are extremely pessimistic about the prospects of the investment.
In other words, wait until you can buy the asset at a extremely discounted price. Keep in mind that every investment is affected by what you pay for it. The less you pay, the better your rate of return on that investment. Never, Never, Never…overpay for an investment.
People feel losses twice as much as they feel gains.
Successful investors develop a number of valuable skills over their lifetimes. And many report that patience is the most important skill to learn and master, but often it goes underused.
We’re not born patient. But, patience can be learned and, if you’re an investor, learning it could help you reach your financial goals.
Patience often involves staying calm in situations where you lack control. Even if we’re patient in some parts of life, we have to practice and adapt to be patient in new situations. Just because you’re a patient person while waiting in line at the DMV doesn’t mean you’re a patient investor.
Alway keep in mind and retain the mantra that…if there is a good opportunity now, a better one will come in the future.
Yet, patience can be difficult for investors to master, why it’s an important investing skill and how to apply patience to investing.
Why Is it so Hard to Be Patient?
Simply put, your brain makes it hard to be patient. Human beings were designed to react to threats, either real or perceived. Stressful situations trigger a physiological response in people. You’ve likely heard this called the “fight-or-flight” response — either attack or run away, whatever helps alleviate the threat.
The problem is, your body doesn’t recognize the difference between true physical danger (during which fighting or fleeing would actually be helpful) and psychological triggers, like scary movies. Being patient is difficult because it means overcoming these natural instincts. Turbulent financial markets can trigger the response too but, unlike scary movies, there can be real-world impacts you’ll need patience to overcome.
When markets are seesawing and you’re overwhelmed with negative financial media, as we experienced this year during the pandemic-driven bear market, your brain perceives a threat to your financial well-being. Even though stock market volatility isn’t a physical threat, the fight-or-flight response kicks in, emotion takes over, and your brain starts telling you to do something. Your investment portfolio is being harmed! Take action! Now! With investing, action too often translates into selling something because selling feels like you’re shielding your portfolio from further harm. But selling at the wrong time — like in the middle of a major downturn — is one of the biggest investment mistakes you can make.
Impatient investors let anxiety and emotion rule their decision-making. Their tendency towards “doing something” can lead to detrimental investing behaviors: checking account balances too often, focusing on short-term volatility, selling or buying at the wrong time or abandoning a long-term strategic investment plan. And those bad behaviors could damage investors’ long-term returns.
Selling out of the market during a correction might feel like you’re taking prudent action. And you may even derive some pleasure in seeing the market continue to fall after you’ve sold your equities. But that pleasure could soon be replaced by regret, because consistently and correctly timing the market by selling and buying back in at the right time requires an incredible amount of luck — and we don’t know any investors who have that much luck.
Investment entry point and investor patience are super-important too.
Benjamin Graham, known as the “father of value investing,” knew the importance of patience in investing. Patience and investing are actually natural partners. Investing is a long-term prospect, the benefits of which typically come after many years. Patience, too, is a behavior where the benefits are mostly long-term. To be patient is to endure some short-term hardship for a future reward.
The importance of being patient when investing can be best summed in this quote by Benjamin Graham…“In the end, how your investments behave is much less important than how you behave.”
“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
Compounding works exponentially for the patient investor. The power of compounding is one of the most important concepts that investors need to learn and embrace. Since, patient and time are better friends to the investor than experience, expertise, and even research.
“A lot of people historically have done fairly well investing in companies they just genuinely like, whether it’s been Starbucks or Nike.” Gary Vaynerchuk, CEO, VAYNERMEDIA
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