We all know about the great book by Benjamin Graham “The Intelligent Investor”. In that book, Graham has described the golden nuggets of value investing.
There are several styles of investing that has emerged over the years – The Momentum Investor, The Aggressive Investor, The Value Investor, The Real Estate Investor, The Passive Investor and so on.
While each style is unique and views the market opportunities differently, there is a characteristic of few successful investors which made them win in the long run. It is also one of the key principles of Graham’s Intelligent Investor and the Value Investor. This characteristic is nothing but immense Patience.
Who are the non-patient investors?
Let us first look at certain investors who do not fall in this category.
- Day Traders – Short term profits and can incur huge losses as most of them are betting on stocks with margin money.
- Momentum Investor – They can make a lot of money investing in momentum stocks like Tesla, Apple and other companies with very high PE ratio. However at such astronomical PE ratios, there is always a chance that the stock price will fall a lot, at the sign of a bad news for the business.
- Real Estate Investor – Although it is a different asset class, most investors jump into it (or call themselves REI) when the house buying frenzy is at its peak. Just remember 2008 and nothing more needs to be explained.
- Passive Investor – This investor is using the passive instruments like Mutual funds and ETFs, but there is a tendency to time the market. He/she will follow the latest performance trends of the Mutual Funds and ETFs and keep jumping in and out of the best performing fund.
- Asset Expert – There are investors today who are predicting a dooms-day with stocks and paper money in general. Hence they are hoarding precious metals like gold and silver, and think that the future economy is going to be run on precious metal currency only. This is again a short term thinking and trying to play I-know-it-all and hoping for some excitement that they are right.
Some of above styles are prone to high returns with high risk. Naturally the high risk and speculation can cause huge losses and investors run into trouble with foreclosing, debt, margin money etc.
Who is a Patient Investor then?
The Patient Investor on the other hand works with a plan and is not concerned by any of the above.
Here are some basic traits that makes a Patient Investor what he/she is.
- Has a clear goal and plan for life and finances.
- Maximizing wealth is not the goal but build wealth to enjoy a happy life.
- Takes well calculated risks in stocks and real estate.
- Avoids all esoteric investments that are difficult to understand, even if the experts are predicting positive views.
- Does not time the market and believes that anyone trying to do so is a scammer.
- Is happy with his/her current state and utilizes the resources to grow organically. For example, investing in one’s education and skills and not chasing just hot stocks.
- Waits for the market to throw up opportunities. This is used by great investors like Buffet and value investors in buying stocks/companies, but can be applied to other forms of investment. Real Estate is a prime example, where patience and data are more desirable than emotional purchase.
- Does not react to the short term economic roller coaster. He/she diversifies investments enough to hold and ride through the waves of good and bad news.
Now is the perfect time and test for the Patient Investor.
With the stock market almost at a bubble and real estate prices going crazy with low interest rates, the Patient Investor will keep investing with a plan and not carried away by the FOMO (Fear Of Missing Out) rally.
The Patient Investor will believe in the benefits of diversification and asset allocation. Even if he/she wants to add a new asset or increase allocation to an existing asset, it has to be done at the right price.
This December 2020, I rebalanced some of my equity investments which had run up beyond my expectations. This helped me add the profits to my bond portfolio and other fixed income investments.
I had a plan to buy more real estate but having a healthy allocation to this sector through various means like rental property, own house and REITs (public and private), I decided not to participate in the rat race just because interest rates are down.
I will keep looking for good opportunities according to my plan. That is what makes me a Patient Investor.