Patience is an investment virtue

If our facts and reasoning are correct, we will hold a business patiently, even when the stock price does not show much positive change. As human beings, we have an inbuilt propensity to want to do something. Faced with the choice of just sitting still and waiting, most would instead opt for activity. However, to paraphrase Pascal, most of a man’s problems are caused by his inability to sit quietly in a room. We dread investment boredom and instead choose costly investment distractions. History shows that many investors suddenly feel the urge to do something, and in doing so, find it turns out to be extremely unprofitable. Patience is an incredible investment skill and something many find difficult to put into practice. Nevertheless, the serious money is always made in the waiting. The farmer who rushes his magnificent livestock to market the minute they can be sold, rather than raising them to the point of maximum profit, will produce a little short term cash, but at a significant long term cost. If the job of investment selection has been carried out correctly, a lower market price for a period of time can actually prove advantageous. It either affords investors the opportunity to purchase more stock at a reduced valuation, or equally importantly, allows the company’s management the opportunity to complete stock repurchases at a more favourable price. If you think about Alphabet’s announced it wanted to buy back 25 billion worth of stock, would you rather they did this at a discount or in a rising market at the highest price? Knowing that the cheaper the purchase price, the greater the long term benefit to shareholders, in some cases we would prefer our stocks went down or stayed cheap for a while, rather than rising significantly higher before we or the company could buy more stock.

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If our facts and reasoning are correct, we will hold a business patiently, even when the stock price does not show much positive change. As human beings, we have an inbuilt propensity to want to do something. Faced with the choice of just sitting still and waiting, most would instead opt for activity. However, to paraphrase Pascal, most of a man’s problems are caused by his inability to sit quietly in a room. We dread investment boredom and instead choose costly investment distractions. History shows that many investors suddenly feel the urge to do something, and in doing so, find it turns out to be extremely unprofitable. Patience is an incredible investment skill and something many find difficult to put into practice. Nevertheless, the serious money is always made in the waiting. The farmer who rushes his magnificent livestock to market the minute they can be sold, rather than raising them to the point of maximum profit, will produce a little short term cash, but at a significant long term cost. If the job of investment selection has been carried out correctly, a lower market price for a period of time can actually prove advantageous. It either affords investors the opportunity to purchase more stock at a reduced valuation, or equally importantly, allows the company’s management the opportunity to complete stock repurchases at a more favourable price. If you think about Alphabet’s announced it wanted to buy back 25 billion worth of stock, would you rather they did this at a discount or in a rising market at the highest price? Knowing that the cheaper the purchase price, the greater the long term benefit to shareholders, in some cases we would prefer our stocks went down or stayed cheap for a while, rather than rising significantly higher before we or the company could buy more stock.

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