The Need for Patience in Value Investing

Patience is a critical tool for value investors that will lead to big returns

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Mar 16, 2018
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If you are going to try and become an investor, there's one quality that you must have above all others: Patience.

Patience is required throughout the investing cycle. You have to have patience to do your research on a stock before you buy. You have to be patient to wait for the right price to buy. And, finally, you have to be patient and wait for the value to be realized.

Warren Buffett  (Trades, Portfolio) sums up this idea nicely:

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.”

Patience, and the ability to sit down and wait, is the primary trait that links all of the world's greatest investors. If you do not possess this trait, it might be best to avoid stocks altogether. Indeed, as Jesse Livermore once said:

“Throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was made in the waiting.”

Unfortunately, the environment today has developed in such a way that works against patience. In other words, investors are constantly bombarded with information in an attempt to get them to buy or sell a security. As 

Joel Greenblatt  (Trades, Portfolio) has said:

"The biggest challenge for investors is patience and that is in short supply. You used to get a quarterly statement and often throw it in the garbage; now you can check your stock price 30 times a minute. There’s a lot more data, a lot more ability to crunch numbers and compare people. That works against investors, and patience continues to be the hardest challenge. It always was, but now it is even worse." 

This is what separates the good investors from the bad. The good investors can ignore the constant flow of information and instead, focus on achieving the best results, no matter how long it may take. Meanwhile, bad investors are obsessed with performance chasing, trading in and out of positions. 

Mohnish Pabrai  (Trades, Portfolio) cautions against this practice:

“The single most important skill for being a good investor is to be very content with not doing anything for extended periods and that’s perfectly fine.” 

Accoridng to

Seth Klarman  (Trades, Portfolio), the hardest part is being out of the market, waiting for the right opportunity, when everyone else seems to be making money:

"The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing."

But this is imperative if you want to stick to your strategy. As Irving Kahn once said:

“You don’t have to be fully invested all the time. Have patience, keep your standards.” 

Remember, as an average investor, you are not being paid for trading; you are paying someone else. Ultimately, these fees come out of your total returns. As Buffet has said:

“We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.” 

While waiting on the sidelines might be hard, it does mean that when you eventually take action, it will be decisive. As 

Charlie Munger  (Trades, Portfolio) said:

“I think the record shows the advantage of a peculiar mind-set – not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness.” 

As long as you know your discipline, invest inside your circle of confidence and do plenty of research. There is no need to be concerned about the outcome, as Munger has suggested:

“Most people are too fretful, they worry too much. Success means being very patient, but aggressive when it’s time.” 

Howard Marks  (Trades, Portfolio) suggests waiting for the bargains. Sooner or later, the market will give you an opportunity to buy what you want at a highly attractive price:

“There aren’t always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism – waiting for bargains – is often your best strategy.” 


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