What is the one skill that an investor needs to be successful and have respectable long term returns? If this question were asked to different advisors within the industry, I’m sure some of the top answers would be along the lines of, “ability to read financial statements, ability to recognize companies with an economic moat, or ability to identify quality management.” All of those are important skillsets for sure, but there’s one that has stuck out to me as a tried and true skill that separates the best investors from the rest. The skill I have in mind is also a great virtue to have in life as well. It’s called patience.
I’m sure patience is something we all struggle with. If it were easy, we’d have less arguments with our spouses, better decision making, less anxiety, etc., but the truth is that patience is a hard virtue to master. I’m not going to get into techniques on how to master patience, but I am going to tell you that having the ability to be patient when it comes to investing will give you an edge that your IQ will never do.
The notable investor Warren Buffett said, “Successful investing takes time, discipline, and patience.” Those are words coming from one of the most successful investors of our time and are certainly worthy of our attention. As a side note, I found this article to be a good summary of other key principles we can learn from Warren Buffet as well. In regards to our demeanor as an investor, the more investing is like watching paint dry or grass grow, the more likely our results will be satisfactory. That is not the sentiment you will find on CNBC, the Wall Street Journal, or other financial media outlets. They promote constant activity and feed off the emotions of fear and greed. That type of behavior is not the The “Value Investing Way” approach that I’ve written about in the past. Patience is so important because its the skillset and virtue that helps you master your emotions and remain vigilant in your strategy of buying and holding quality companies. You must remember that the timeline of successful investing is years, not quarters.
You may be thinking, “Why does patience and having a longer timeline lead to better results?” It matters because in the short term, the market is very volatile and looks unpredictable and scary, but in the long term, the market is very rational and consistent in relation to the underlying earnings of the companies that the “market” comprises of. For an impatient investor, rash decisions are made to buy and sell frequently, which leads to buying a company at too high of a price or selling a quality company too soon. The impatient investor gets caught up in the emotions of the moment and fails act like a business owner and more like an attendee at an auction. Patience is what helps an investor make intelligent decisions and allow the underlying economics of the company invested in to multiply through the years and bear fruit. Now granted, you can’t go out and buy a company that’s been losing money for the past ten years and expect that if you’re “patient” and hold it for ten more years that you’ll have a successful investment. Investing still requires many other skillsets, but if you find a handful of companies that have a history of solid earnings, economic moats, and good management, patience will be your best friend.