Let’s be honest. Being an investor can sometimes be very boring. Everyone says, if you are a value investor, be patient – but have you really thought it through, what being ‘patient’ means? It means a lot of waiting, and sometimes for years and nothing but grey hair to show for all that waiting.
I am sure you must know the story of the three little pigs. One of the pigs built a house made of straws in no time at all. Another built a house made of sticks, it took a while longer, but not by much. The last pig, built a house made of bricks. It took a whole lot longer, because bricks needed to be fired in the kiln, cement needed to be mixed, then the bricks laid down..basically, a much longer time. Guess who stuck around in the end when the wolf came?
Winning businesses take a much longer time to build than its counterparts.
Rome wasn’t built overnight as they say, neither are businesses. Many television shows portray kids at the back of the car, saying “Are we there yet?” over and over as soon as they get into the car. The temptation to get out of the car when it is stuck in a traffic jam can be overwhelming sometimes, especially when you have a need for the washroom.
Jack Welch said, “In my experience, an effective mission statement basically answers one question: How do we intend to win in this business?” Winning businesses last longer, appreciate better, than a makeshift, ‘fly-by-the-night’ businesses. Are they then not worth waiting for?
But what do you do while you wait? Is waiting a passive endeavour, or an active one? I have both tried the ‘purchase and forget’ method for some of my holdings, and others, I watch like a little hen guarding her eggs. The ‘purchase and forget’ method actually turned out great whilst the watched eggs – some turned out great while others cracked. So, it’s hard to say.
Watching a holding closely gives you the temptation to take unnecessary actions that you might otherwise should not have taken. It also distorts your perception of time, or the non-immediacy of actions given the long run view that you have taken. Little things that happened to the company is suddenly amplified in your view as you witness the market’s reaction to the glitch and feel that you too, should throw in the towel.
Perhaps it comes as no surprise to some that I am a fan of Lao-Tze, who said,
“Do you have the patience to wait,
Till your mud settles and the water is clear?
Can you remain unmoving
Till the right action arises by itself?”
Peter Drucker said, “The only thing we know about the future is that it will be different.” After aeons of waiting, you might find that the company your thesis predicted would end up as something completely different. Especially for a small cap, you are entrusting the management to steer the company to the destination you hoped it would. That is a huge trust to place on a group of people. Do people always behave the way you wish them to?
What if after all that waiting you are left with disappointment? This happens more often than not. I don’t think many of the investing books properly equip their readers on the possibility of disappointments and how to cope when it comes. There is not only the matter of capital loss, but also the sunk cost of research time and spent emotional reservoir.
Do you have a good strategy to cope with disappointments? Unless you are an extremely talented or lucky investor, you should have a good strategy. Something to prevent you from beginning to doubt yourself. This also prevents you from being held back from continuing to invest in future selections after having had a great disappointment – to ‘get back on the horse’, so to speak. Patience does not need to be infinite – if the story has changed beyond repair, cut your losses and move on.
Do not underestimate the psychological requirement of what it takes to be a good investor. There will always be decisions that you took a year ago, or many years ago for your portfolio that you will regret, or say, “What was I thinking?” For this, one major strength that you need is the ability to keep everything in perspective. Your ‘future you’ cannot be too hard on the ‘present you’. He or she would have forgotten how difficult and unclear the situation is when you made the decision. Everything is always more obvious in hindsight.
Jim Rohn, an American entrepreneur and author said “we must all suffer one of two things; the pain of discipline, or the pain of regret and disappointment.”
There is no art nor science to being patient and waiting. As long as you keep checking that your thesis is still intact and the price has not gone crazy, the only thing to exercise is patience.
So the question you should ask yourself is, do you have what it takes to be a good ‘patientor’, and therefore, investor?