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Rupert Hargreaves
Rupert Hargreaves
Articles (687)  | Author's Website |

Some Thoughts on the Art of Waiting

Patience is a virtue when it comes to investing

December 14, 2018

As any seasoned investor will tell you, if you want to be successful in the stock market, you'll have to devote a considerable amount of time and effort to understanding stocks, businesses and trends.

Unfortunately, there is no shortcut for research. It may be tedious and time-consuming, but it is required if you want to be successful over the long term.

Research is just part of the investment process, however, and I am gradually starting to believe that to be successful, there is one skill you need to learn that is more important than all of the others put together.

It takes time

Something I have learned by studying the world's best investors over the years is that each one has their own way of investing.

Seth Klarman (Trades, Portfolio), for example, likes to invest in deep-value stocks and assets wherever he can find them, both in the public and private markets. Warren Buffett (Trades, Portfolio) uses a similar approach, but he's not as strict about valuation as he once was. Carl Icahn (Trades, Portfolio) does not seem to care about valuation as long as he can create value in one way or another. Howard Marks (Trades, Portfolio) likes distressed debt. Joel Greenblatt (Trades, Portfolio) likes quality and value, as defined by his now famous Magic Formula. The list goes on.

All of these investors use different strategies, but they have still achieved investment success -- when I say investment success, I mean they have produced market-beating performances and accrued enormous fortunes for themselves in the process. If you go on the monetary value alone, Buffett is the most successful. Regardless, they have all achieved returns most investors can only dream of.

All of these investors use different methods to make money, but they have one main trait in common: they are willing to wait for the perfect opportunity, no matter how long it may take.

One common trait

I think this is an incredibly underappreciated part of the investing process. Waiting might not be exciting or glamorous, but history shows us that waiting for the perfect opportunity and buying stocks at discount valuations is essential for long-term success. Both value and growth investors have to be patient and wait for the right opportunity. Growth investors wait for a company to reach an inflection point before diving in, while value investors wait for a company's valuation to arrive an attractive level.

Patience is such a critical part of the investment process, I could go so far as to say that without it, you are doomed to fail as an investor.

The big problem is so many market participants are influenced by the bright flashing lights of investing and the fear of missing out, which pushes them to take risks and invest before they are ready or before Mr. Market offers them the right opportunity.

With this being the case, I have decided to try and build an investment process that forces me to wait. I have drawn from the advice I often see passed around on spending on big-ticket items. Before you buy something, you should think about it for a week. If you still want it after that week, then you should go ahead and buy it.

I now use a similar process with stocks. If I see an investment I like, I make a note to look into it on the next weekend. If I don't have time, then I will have to push back the research process. I am entirely OK with this. If I can't find enough time to research an opportunity thoroughly, then I shouldn't be investing. It has taken me a few years to realize this, but now I'm more than happy to let an opportunity pass if I don't have the time to look into it. Nine times out of 10, if an opportunity is so attractive, I will find the time to look into it. Thus, the whole process acts as a sort of a value filter.

Granted, this process isn't perfect and I am sure it can be refined. Still, I think it is a small step on my investment journey to becoming an investor who thinks more and trades less.

Read more here:

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 5.0/5 (2 votes)

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Comments

tooooothick
Tooooothick - 1 month ago    Report SPAM

Gone are the days when robber barons such as Carl Icahan are brought to justice, This phony philanthropist uses his tax-exempt status to hide his fortune. His international price fixing is indeed a criminal act. He has robbed billions by price fixing the metals market. Despots such as these use their billions to place themselves above the law. While the metals market is at an all time high, especially with the tariffs in place. He is only paying half of scrap metals price. This creature should be brought before Congress and then thrown into prison for using laws to rob people.

batbeer2
Batbeer2 premium member - 1 month ago

Thanks for sharing your thoughts.

Yes, patience is important. I'd like to add that it makes sense to me to approach the market as a predator (think tiger or alligator). What's the worst type of market participant you can imagine at the other end of your trade? Perhaps someone who has studied the industry and that particular security for more than a decade and is now finally making a move. That would be my worst nightmare.

So I try to be that guy :-)

Now imagine the favorite prey of such a hunter. I try not to be that.

Just some thoughts.

jtdaniel
Jtdaniel premium member - 1 month ago

Hi Rupert,

Terrific advice. Patience is a virtue in most aspects of life, and certainly in investing. My experience is that saving and becoming familiar with a few great businesses and how to value them in most markets, and then taking action in down markets is a low risk strategy suitable for ordinary investors wanting to venture past index funds. Most of my best percentage gainers were bought during or just after bear markets — Berkshire, Abbott Labs and Hormel in 2003, then Microsoft and American Express in 2008. Best, dj

stephenbaker
Stephenbaker - 1 month ago    Report SPAM

Good and timely article. All great investors exhibit patience. Ironically, I find it easier to be patient now as an older investor than when I was younger. The most difficult time to be patient is after a long, bull run (like now) when prices (and valuations) have dropped perhaps 10 to 20 percent from their highs. As cash builds during a long bull run, it is only human to want to put some money to work. But - and there are several "buts" - in more normalized times (are we there yet?) (1) cash pays at least a nominal return, making it easier to wait; (2) it becomes easier to be more selective in terms of investment and price when the masses are selling; and (3) it becomes easier to strictly adhere to your value criteria when there are actual investment options for which you don't have to find excuses or make exceptions for them to qualify as potential investments.

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