Most people are not able to invest because they just are not conditioned for it. The most significant issue is patience. Most people are not patient enough to be able to buy stocks and hold on to them for an extended period of time.
A speed bump to success
This lack of patience is perhaps the most prominent speed bump for both inexperienced and experienced investors alike, and it is a crucial part of value investing. Indeed, there is plenty of research out there which shows value investing just does not work if you are not patient and jump in and out of positions.
“You don’t make money when you buy stocks. And you don’t make money when you sell stocks. You make money by waiting.” -- Mohnish Pabrai (Trades, Portfolio)
The above quote from Pabrai sums up what investing is all about. Money is not made in the stock market by deciding to buy or sell a stock; it is made over the long term. Investing in a business is a long-term decision, it takes time for a business to grow and develop. If you are not willing to give the company time to grow, it is your loss.
“The Stock Market is a device for transferring money from the impatient to the patient” -- Warren Buffett (Trades, Portfolio)
“The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.” -- Jesse Livermore
“The investor’s chief problem and even his worst enemy is likely to be himself.” -- Benjamin Graham
Find your edge
It may be a surprise to learn the stock market is, in fact, a market, which means prices are set via the interaction of participants. There are no set prices. To be a successful investor, you have to have an edge, which can come in multiple forms. For example, your advantage could be patience or it could be your ability to ignore the rest of the market and dive in at a 20-year low. Or it could be your edge to be able to compute an intrinsic value and wait long enough to be able to hit the perfect entry price. There is much more to investing than just buying or selling stocks.
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” -- Seth Klarman (Trades, Portfolio)
As a result, it often pays to stick with the investments you already know:
"The best stock to buy is the one you already own." -- Peter Lynch
“If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.” -- Charlie Munger (Trades, Portfolio)
And avoid making any stupid mistakes:
“It’s one of the most important things at the end of the day, being able to say no to an investment.” -- Henry R. Kravis
You're not the only investor in the world
It is also fundamentally important that you challenge your own decisions and views. Being the best investor you can be means putting time into asking "why" the stock is trading at the level it is. You need to ask what the rest of the market is seeing that you are not.
With so many people out there trying to make money from stocks, the market has become efficient, so shares are usually trading down for a reason. You should try to figure out what that reason is. If you cannot, it may be best to avoid the business. Knowing both sides of the argument is critical if you want to avoid getting burnt.
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You can’t be a good value investor without being an independent thinker – you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that.” -- Joel Greenblatt (Trades, Portfolio)Â
