Patience And Investing

When I think about how most of us approach the attribute of patience, the quote that comes to mind is "God give me patience, but please hurry !"

Most of us are in a big hurry. We are in a hurry to reach our destination, we are in a hurry to achieve our goals and we are in general dissatisfied with the pace at which life progresses.

I have a three your old girl and she goes to a Montessori play school. She is a very curious and inquisitive child and in general I think she is learning a lot and developing fine. The other day I met another parent when I went to pick her up from school and she mentioned that she was thinking of changing schools for her child. She was distraught that they were not going to teach her child how to write the alphabet at least for another year.

I've been managing money professionally for 15 years now. In the early part of my career, I would be approached by a number of my friends and acquaintances who wished to profit from a stock tip that I could offer them. When I would suggest a stock that I thought offered an asymmetric risk profile with limited downside and good potential upside and one that would perhaps double their money in three years, they would almost always be disgusted and repelled. They believed that since I professionally managed money, I knew which stocks were going to go up and which ones were not and they wanted a stock tip that could double their money in six months. Unsurprisingly, they would not invest in my tip and eventually stopped approaching me. However, I kept track of how many of them fared in their investing. Invariably, they would invest in stocks that had done well in the recent past and that they felt good about, their returns would range from poor to terrible and after dabbling in the market for a period of time, they would throw in the towel and swear away from the market. While one could attribute this to "retail" investors, most professional investors also suffer from this in varying degrees.

In a Zen kind of sense, wanting quick returns actually elongates the time taken to earn the return.

Even those who exercise patience, tend to periodically become impatient when things appear like they are stuck in limbo. It is natural for one to believe that patience has to have a time limit and to wonder how long one needs to be patient. The reality of patience is that it needs to be infinite otherwise it is not patience.

In (value) investing, one buys a security at a discount to its intrinsic value with the underlying assumption that Mr.Market is wrong. One then waits for Mr.Market to recognize his error and for the real value of the stock to get unlocked. I believe that not only does one need to buy a security that is available at a discount to intrinsic value, but one where intrinsic value is consistently increasing (or compounding) at a high rate. With such an investment, one can truly have infinite patience. One gets handsomely rewarded for holding such a security as the gap between market value and intrinsic value keeps widening. Such a security becomes a win - win for an investor. If the value of the security does not unlock, one has the ability to keep accumulating larger chunks of an increasingly valuable company and if the value does unlock, one wins anyway.

Just like we need to unlearn our natural swing and to learn the right swing to be successful in golf, in investing we need to unlearn our natural attribute of always being in a hurry and we need to learn the attribute of infinite patience.