Patience is a virtue, so it is said; more succinctly today, patience is the ability to remain calm, control reactions to unexpected situations, while maintaining an objective focus on a reasoned decision.
Yet, it is so hard to be patient in our culturally induced instant everything society: instant coffee, instant food, instant Internet, instant texts, instant shopping gratification, almost instant delivery, instant trading, instant millionaires. You name it, we expect instant – including instant success.
We are also humans where emotions, impulse, and sometimes fear can override logic and rationality. Indeed, when it comes to investing, we have a subtle tendency to sabotage ourselves even further by wanting to be in the winners’ box, instantly.
For instance: What do you think your own first perceptions are of the immediate wealth of Bitcoin millionaires, Gamestop trading/gambling coups, and shortsellers cashing in – hyped on euphoric social media platforms. Do these investing events subliminally trigger the thought process that says: I need to get in the game, if these people can do it, so can I?
What we tend to lose track of is that these messages tout only one side of the investing game. Investments are not numerically-calculated fixed returns like term deposits. Their values can fluctuate positively and negatively, sometimes dramatically in highly volatile capital market conditions. In the statistically-proven long run, good investments will appreciate in value.
There are many examples of individuals, in severe capital market disruptions, who could not cope with seeing the volatility in their portfolios. With valuations dropping, numerous other personals stressors impacting one’s daily life, doomsday predictors adding to the uncertainty, the pain of seeing market losses, even though I emphasise that these were unrealized losses not sold positions, investors completely lose perspective.
This meant that in a serious market crash, panic would set in, then herd liquidation would follow – everything sold at a loss – only to watch as markets recovered, these now-sold portfolio positions move higher. This emotional monetary decimation would happen again and again as the individual would re-try investing – each time with less money. Eventually, capitulation followed. What little remaining cash was deposited to bank accounts.
Yet, That Is Not What Long-Game Patient Investors (LGPIs) Do.
Independent investment research versus herd mentality thinking
LGPIs have done the initial homework on their investment choices, and they continue to upgrade their understanding about their investments.
Know what you own. Never love a security position.
LGPIs understand that an unrealized loss in any security position does not mean a company will fold up. They have undertaken a review of just about every well-established company/government/ etc, its underlying security positions, and how they reacted and recovered in prior market downturns. All publicly available information!
Rationality over emotional impulses.
LGPIs simply will not allow themselves to fall into short-term emotional despair. They are comfortable with their investment choices and will ignore short-term volatility.
Understanding clearly one’s level of risk discomfort.
LGPIs approach risk from an analytical perspective. First, how much could they afford to invest, and possibly lose, if any; and second, they will run calculations to project loss amounts, say 10%, 20%, 30%, even 40% temporary drops in value. This exercise determines how much, and at what risk level, the LGPI is willing to tolerate in each investment made.
Diversity over concentration.
Risk level comfort is complemented with a highly diversified portfolio including various sectors, industries, countries, governments, etc. as non-correlated with each position as possible as opposed to having just a large few single security positions – the source of significant stress.
Do you need security over leverage?
Leveraged portfolios have the capability of enhanced returns, as well as deeper losses. LGPIs have to find their tolerable comfort level in this decision.
When markets are crashing and doomsayers are clashing, if you cannot control your impulsive behaviour, then check yourself.
Work with a long-term experienced qualified financial advisor. Trust me, they/we’ve seen it all – time after time through numerous market crashes – and amazingly, yes, recoveries. A trusted financial advisor can provide objective, reasoned assurances for your long-term financial plan, especially, when markets are chaotic.
Finally, two long-term patient investor scenarios.
A global investment firm conducted research on which type of their investor clients generated the best returns over a long-term time frame. Can you guess?
• Individuals who completely forgot they even had an investment account; and
• Individuals (deceased) whose investment estates had been left unattended.
Two investing confirmations that really define patience, meaningful non-interference producing long-term well-managed portfolio appreciation.
Documented proof that long-term fully invested security positions, time in the market as opposed to timing the market, does reward the patient investor – playing the long game.
Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” ― Benjamin Graham, The Intelligent Investor
More from Investing Today by Clarien:
ESG: Investing With a Social Conscience
The Patient Investor: Playing the Long Game
She’s a Millennial with Hard-Earned Savings. It’s Time to Invest
For more information, visit www.clarieniinvest.com
Martha Harris Myron, a native Bermudian with US connections, is a qualified international cross-border financial planner, the author of The Bermuda Islander Financial Planning Primers, since 2016, a Google News Contributor (50+ articles), international financial consultant to the Olderhood Group Bermuda Ltd., and financial columnist to The Royal Gazette. Contact: martha@pondstraddler.com
