Patience is paramount for reliable investment performance

Investing is easy

At least some say it is.

You just buy and hold, and then you retire rich.

Well, it’s not quite that easy – at least not for mere humans, since we tend to lack the required patience.


A history, and future, of waiting for Godot

In just the 8 years between 2009 and 2017, the S&P 500 index surged from 666 to almost 2400. Including a few per cent a year as dividends on top, the annual total return of some 17% (including dividends of ca. 2% p.a.) turned one dollar into around four.

On the other hand, if you bought at the peak in March, 2000, you would still have been down by about half even nine years later, and just about break-even after a full 13 years. Over the full 17-year period, 2000-2017, your annual return before dividends would have been 2.5% (compounding into a 50% return), and approximately 4.5% including dividends.

I’m tempted to include that the NFMC/GVA multiple for the median company in the S&P 500 index is now the highest it has ever been. Were it to revert to its mean within a year or two, you would still be down on your investment in S&P 500 from almost 20 year earlier.

Were it to undershoot as it has done many times before when financial bubbles have unraveled, an even quarter century is probably the eventual tally of years for getting exactly nowhere. The positive news is that after that you can look forward to some 5-10% annual returns on average.


Fortunately, there is another way.

Several actually.

They all require patience though, just slightly different strains.

Instead of investing blindly and waiting for decades upon decades for a half-decent return, you could start with the waiting.


Bide your time and wait until the target manifests your desired margin of safety

Never rush your decisions

Chasing an investment means you’re already too late

You don’t have to write monthly reports to investors, just a life report to yourself

Use that advantage


Whether investigating an index position for an industry, an entire market, or for an individual stock, don’t rush after the impatient fools. The inexperienced investor is more easily led astray by the herding instinct and social proof bias. In addition he tends to think, or feel rather, this is the last opportunity to get on the train.

Since everybody is rushing to invest every last dollar, and then some (borrowed), it’s easy to get the impression this really is the last chance. That, however would imply future generations will be left out altogether, a wholly implausible postulate in an industry that is known for its volatility and fluctuations if for nothing else.

Instead, wait for a good opportunity, nay a great opportunity. Keep your powder dry while accumulating useful knowledge, and turning data into information and reliable investment decision support. When the time is right, for the single stock or an entire index, you pounce. When others are selling in panic at bargain basement prices, when margin calls make bubbles revert to the mean, or invert to even lower levels, you make good use of your patient cash.

Wait

Study

Wait

Pounce

 


n my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

Over a period of two weeks, I’m going through and explaining some of my most important insights from that time. Taken together I believe they will make for a useful inspirational reminder for enhancing your investment habits, not to mention a tool for post-mortem analysis, should an investment turn sour.


 

Patience means being able to withstand the herding instinct when the fundamentals are wrong. It means the ability to wait for a good entry point as well as a good exit opportunity. It means trusting your own system enough to actually invest according to the applicable time horizon, not just paying lip service to it.

 


There is no one optimal investing strategy, but you need patience to reap the rewards from the one you’ve chosen.

If time runs out on one investment,

simply turn the hourglass

and

investigate another


Patience

As a value investor I’m used to waiting; sometimes when buying a cheap company in the middle of a bursting bubble, sometimes when other investors are chasing story stocks instead of deep value, sometimes when everything is expensive, sometimes when cheap stocks get cheaper by the day or stay cheaper for longer.

Patience:

Right now the stock market is insanely expensive and technicals point to a trend change downward. Hence, I’m underweight listed stocks (actually net short including my XACT BEAR position). Nevertheless I’m long a few gaming companies with strong momentum, a hype/hope biotech stock, a nuclear energy consultancy stock and the Uranium ETF: URA. In my portfolio of private companies I have high hopes for my gold mining options, my jet engine driven surfboard company and my HR software company, not to mention the mortgage broker start-up and the investment company (small family-owned manufacturing and services companies) I’m about to invest in later this month)

P.S. You can buy the TAOS artwork here

 


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5 Comments

  1. These are very timely articles, given the US fed seems determined to pop the bubbles (yes I used that dirty word). So many people are all in on record level stocks and real estate. Apparently nobody has ever heard of “buy low SELL HIGH”. Hint — record levels are the sell high.

    It’s unbelievable to me that memories are so short. So many people lost it all just 8 and 16 years ago. All I have are some boring bank CDs and preferred stocks. So much dry powder I’m practically choking on it. But I am patient.

  2. Patience is the most under utilized human skill today. Look at how we hunted in ancient bands.

    We were persistent hunters. We could outlast an animal. We were persistent.

    All of this, is patience. yet, we’re being forced to adapt to a right now economy. Except, we aren’t. This means even more, that if you’re patient, you are ahead of all others. Outlast your competition.

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