The BIG money is in the WAITING. Here’s how you can successfully invest your funds in the long haul! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
We’re excited to share with you another great investing tip.
Every Wednesday, we discuss various investing tips, insights, and strategies because we believe every one of us deserves to achieve true financial freedom. This will positively impact not just our personal lives but also our families’ lives.
Today, we’ll discuss the sixth discipline of some of the greatest investors in the world.
Read on to know why this “genuine asset” is crucial for making the most out of the other investing disciplines we’ve discussed so far.
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
In today’s always-on, alert-filled world, sometimes the best thing to do is NOTHING…
Think about this in the lens of investing: In a world of no-fee discount brokers, real-time alerts, and the 24/7 news cycle, investors—both novice and veteran—can get lost, confused, and emotional.
Today’s financial media even influences investors to take excess action, which is actually one of the worst things they can do when investing in the stock market!
Here’s the thing: The financial media is full of sensational stories that only stir up investors’ emotions. When you simply listen to such news, the tendency is you’ll panic and risk hurting your investment portfolio.
That’s why if you want to succeed in this financial activity, you must know that one of the most important principles is not how savvy and aggressive your trading strategies are, but something quite the opposite:
In the book, “The Psychology of Money,” author Morgan Housel shared the story of Ronald Read. Read grew up in an impoverished farming household in Dummerston, Vermont, and for 42 years he worked as a janitor and car mechanic.
When he died at the age of 92 in 2014, he made international headlines as the janitor who amassed USD 8 million in fortune.
Photo from Twitter
What was Read’s secret to financial success?
It wasn’t the lottery or gambling. Instead, he invested his money in blue-chip stocks and WAITED for decades. That’s it!
[Blue-chip Stocks: This refers to stocks with a reputation for quality, reliability, and the ability to operate profitably in good times and in bad times.]
While there aren’t many who are like Read, there are still some investors out there who amassed wealth by doing two things: First, they gave their investments time, and second, they exercised patience.
The Power of Patience in Investing
Being patient in investing may look like a boring strategy, but it has generated attractive returns in the long run. According to Warren Buffett, Chairman and CEO of Berkshire Hathaway:
“The stock market is a device to transfer money from the ‘impatient’ to the ‘patient.’”
The “Father of Value Investing” Benjamin Graham also knew the importance of patience in investing. For him, these two are natural partners: Investing is a long-term prospect, the benefits of which typically come after many years. Meanwhile, patience is a behavior where the benefits are mostly long-term too.
According to Graham, to be patient is to endure some short-term hardship for a future reward.
Other billionaire investors also consider patience—or the lack of it—as a defining trait of whether or not one will succeed in investing. Why?
Impatient investors let fear, greed, and anxiety rule their decision-making. Their tendency towards “doing something” leads to detrimental behaviors such as:
- Checking account balances too often
- Focusing on short-term volatility
- Selling or buying stocks at the wrong time
- Abandoning a long-term strategic plan
… and more.
In turn, these bad behaviors damage investors’ portfolios and long-term returns.
On the other hand, patient investors do the opposite of the items stated above. As a result, they see their money grow over time and reap the fruits of their discipline.
Take a look at what these investing giants have to say about patience in investing:
“The big money is not in the buying or selling, but in the waiting.”
– Charlie Munger, Vice Chairman of Berkshire Hathaway
“The most effective means of building wealth is simply to emulate the annual returns provided by the financial markets, and reap the benefits of long-term compounding.”
– John Bogle, Founder and former Chief Executive of The Vanguard Group
“Invest for the long haul. Don’t get too greedy and don’t get too scared.”
– Shelby M.C. Davis, Founder of Davis Advisors
“The single greatest edge an investor can have is a long-term orientation.”
– Seth Klarman, Chief Executive and Portfolio Manager of the Baupost Group
“After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”
– Jesse Livermore, pioneer of day trading
How Can You Become a Patient Investor?
Being patient in investing is not easy and will definitely take time. Thankfully, there are tools and strategies to help you cultivate this behavior and exercise clarity of thought in your financial decisions:
- Think long-term. Keeping a long-term perspective will give you the psychological fortitude you need to grow your portfolio in the long run.
If you’re having trouble thinking long-term during stock market volatility, consider enlisting the services of a trusted financial advisor to help you stay on track.
- Understand that market volatility is normal. Just like falling in line at the grocery store checkout, experiencing stock market volatility is a part of investors’ lives.
While it is unpleasant to experience such scenarios at the present, recognizing and understanding you’ll encounter ups and downs of the markets from time to time will help you mentally prepare for future corrections or other downturns.
- Remember that time is on your side. Take solace in the history of capital markets! Stock market corrections are temporary and usually brief, and bear markets eventually end.
Owning stocks for the long term is one of the best ways to profit from economic progress, innovation, and compound growth.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, patience is a “genuine asset” for making the most out of the other disciplines of the investing giants.
Without patience, an investor would find passive investing difficult. One would buy too soon… and also sell too soon. The impatient would also let himself or herself be dominated by his or her emotions.
That’s why Professor Litman agrees as much as any other discipline, the virtue of patience is universally regarded amongst investing giants.
Apply this discipline to your own investments!
Always keep in mind that patience is one of the most prudent and smartest approaches for investors. Whenever stock market volatility strikes, consider this discipline as an active choice and one of the most potentially rewarding decisions you can make over time.
As Professor Litman says, wise investors have the community and research answers to remain patient through thick and thin.
We hope you learned a lot from today’s “The Independent Investor!”
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
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