#Patience In Investing. A trait that can make you a multi-millionaire
For passionate investors investing is a game where you go and make money by riding a sound ship while the sea underneath takes you on a wild ride.
Everyday the game entices many to enter with lures of easy money.
Why is it that majority who enter are consumed by the market?
Is stock market success all about the best degree in finance or is there something about super investors that makes them so good at this fascinating game?
Is it enough to have an analytical bent of mind to make you rich in the investing world?
Folks. Answers to all these questions lie in our emotional intelligence.
In past 6 years of my investing experience as a full time equity investor, I have realized that there are a few behavioural traits that decide whether you will be thrown out of stock market or you will live to be a great player.
I have decided to cover these traits in detail through this post and others that will follow. We will cover these traits with some good examples.
In this post we will see the importance of Patience in investing and a few ways in which markets can test an investors patience.
Level Of Patience In Investing That Can Make Others Cry
Patience is our ability to tolerate events that take time to materialize with poise and calm. It is the ability to hang on a little longer when you have had enough.
All great men and women who rose from ashes were tried by grinding wheels of time.
When others begin to crumble under pressure, the one with an intense desire to succeed hangs on a little longer.
Things not working out for a long time is a common phenomenon and only those who show patience to persist with the problems a bit longer are truly rewarded.
It is as if the universe conspires to test your mental strength before giving you what you want.
Kabir Das, a famous Indian spiritual poet and saint wrote in one of his Dohas or couplets
धीरे-धीरे रे मना, धीरे सब कुछ होय,
माली सींचे सौ घड़ा, ॠतु आए फल होय
Dheere Dheere Re Manaa Dheere Sab Kuch Hoye
Maali Seeche Sau Ghadaa Ritu Aye Phal Hoye
Slowly slowly Oh Mind. Everything takes it own sweet time
A Gardner may water a hundred pots but they bear fruit when the season arrives
Is it not the same in investing? An investor is like a gardner who invests in many ideas but they come to fruition only when the right time arrives.
From the time you invest to the time you book profits, an essential trait that gets tested in between is Patience.
Let us now look at some of the real life scenarios from stock market where our patience can be put to test.
Stock Markets Can Test Your Patience In Many Ways
Patience, my dear friends. A little more Patience in investing is a great trait of a successful investor. When a stock goes nowhere for prolonged periods of time, patience may become a crucial factor in determining your investing success.
While the stock of a good company goes no where, great investors with extreme levels of patience keep accumulating it while the impatient ones keep selling.
The uncertain markets can test your patience is many ways like:
a) You do your research on a stock idea and decide to buy but the stock moves in a tight range for a year or more
b) A stock that you have bought begins to slide purely due to negative market sentiment or temporary problems like a manufacturing plant catching fire
c) Shares of a company have been up 20% and you can’t stop yourself from booking profits. You are not trained to “Do Nothing”
d) Signs of Euphoria are flashing in the market. Do you have the courage to exit your investments and patience to stay in cash for more than a year?
Depending on how you react when your patience is tested, directly indicates your chances of success as an investor.
Let’s look at each scenario with real life examples.
1. Bought A Stock That Moves In A Consolidating Range
Let me show with a real life example how extreme levels of patience are required while buying stocks.
Suven Lifesciences is a financially sound pharma company that is in to Contract Research And Manufacturing (CRAMS) and was also trying to develop a cure for Alzheimer disease.
The stock had fallen from a high of 320 in 2016 and hit a low of 144 Rs on Feb 2016. Post that the stock kept going back and forth in a range for close to 2 years and 4 months.
Such consolidation periods can test the patience of an investor. Especially if you keep staring at the price on a daily basis there is a high chance you will cash out.
Smart investors often keep buying stocks gradually over this long consolidation range. Thereby continuously increasing their stake.
The amateur investors are the ones that sell out to the mature investors as their patience runs out.
On a side note, I have learnt recently that when stocks go in such consolidation range, one should closely monitor the red volume bars
During this consolidation range shown in the chart below look how the sellers are getting exhausted by the buyers over a long period of more than 2 years. Once the sellers are gone the stock rises sharply.
It eventually broke out of this range in July 2018. From a low of 160 to 320..334 in around 18 months).
2. A Stock That Slides Purely On Negative Market Sentiment
In investing it is not those with the highest IQ that turn out to be great investors. The reasons is simple. Stock market is extremely volatile.
Even the best of IQ cannot predict what challenges a company might face in near future or predict an exact date for a recession to occur.
Therefore stock market success is a combination of analysis of financial numbers and a mind trained to supersede impulsive behaviour.
Example Of A Share That Went Down And Tested My Patience
I purchased shares of a IT company named, RS Software averaging around 170 Rs a share in Jan 2013. Soon the stock began to slide . It touched 140 Rs in Feb 13 and then hit a low of
102 Rs on 27th June 13.
I was down almost 40% and the stock price was playing on my nerves. I was annoyed, irritated and had a terrible urge to sell. I was unable to think anything beyond the paper loss I had.
As I sat brooding over my mistake, my wife who always has had a better control over emotions asked me only one thing. Is the company doing well financially?
I nodded affirmatively. She said, then what are you waiting for? Start buying shares at this price and I started buying a lot of shares at 118 Rs and kept buying till mid 2014.
Please see the snapshot of the rising sales and profit numbers of RS Software from 2008 to 2013.
Another point to be noted is that the company had no debt and its return ratios were very good. In addition to this its return on capital employed was also very good.
Guess where the stock price was on 19th Sep, 2014
There is more to the story here. Eventually, I exited this stock at 352 Rs in order to protect the principal amount plus remaining profits. You can read more about my exit, the interesting twists and the ups and downs here
This stock tested my patience, conviction to hold and my emotional control at the same time.
3. Don't Book Profits Yet. Have You Heard About Doing Nothing In Stock Market ?
The most difficult things where most investors give up their gains pretty early is they cannot let the investment be on auto pilot mode.
Once they have a winning stock in hand there is an irresistible urge to book profits quickly.
We want everything quickly. We want to gratify ourselves instantly without any delay.
Well. Patience exercised in holding stocks of good companies and doing nothing is one of the biggest factors that make you super rich.
Just a look at stock charts of a few sound companies explains how wealth is created by doing nothing or as they say it “Buy Right Sit Tight“.
First chart belongs to Madras Rubber Factory, the tyre manufacturer that entered tyre manufacturing in 1960s has been a big wealth creator for its investors.
All you had to do was to hold on to the shares just like you keep holding your investments in real estate
Second example is of Titan company, a consumer goods company with brands like Fastrack, Tanishq, Titan EyePlus.
His stake in Titan was valued at 7837 crores as of June 2019. He has been holding the shares from 2002 to 2020. That is 18 long years (enough time for an infant to become a teenager).
This is a classic example of how practicing patience and doing nothing stupid with your investment can create a lot of wealth for an investor.
The lesser your patience lesser the levels at which you would have sold Titan.
4. Decision To Stay In Cash On Seeing Signs Of Euphoria
Deciding to stay in cash is one of the hardest choices made by an investor. While the rally may lift stocks to absurd valuations, a patient investor decides to exercise restraint.
It is better to be in peace, content with the profits you have made in a long bull run rather than trying to catch the last wave of the bull market.
This can only be done by investors who have extreme levels of patience because the market will continue to lure you. It will show you new highs that are too difficult to resist.
Can you resist this temptation to invest, exercise patience and stay in cash? Even in today’s euphoric bull market a similar situation is brewing.
The markets continue to rally due to ultra low interest rates and everyone seems to be criticizing Warren for holding close to 128 billion dollars in cash.
Even I have stayed in cash for last 2 years waiting for the small cap and midcap index to bottom out. Recently the tide seems to be turning in favour of these indices.
Warren Buffet Closes His Partnership in 1969
In the year 1968 when the bulls market was soaring, the legendary investor Warren Buffet had his best year beating the DOW by 50%. Buffet partnership earned around 40 million dollars in 1968.
At the height of the bull market From 1968 to 1969 stocks like IBM, Polariod etc were trading at high valuations.
This was making Warren uncomfortable. He was also running out of ideas to invest. So in May 1969 he decided to close his partnership.
It was not until four years later i.e. 1973 that Warren went on a buying spree. His philosophy has been simple. When stocks are overvalued he prefers to stay in cash. There can be many counter arguments to this. But then who in this world can be right all the time.
Instead of trying to catch every wave go for the one when everything works in your favour. It is then you swing your bat for a homerun.
In the bear market of 1973 to 1974 S&P fell 45%. Shares of big firms like Coca Cola fell from a high of 149 $ to a little over 44$.
In the meanwhile a restless Warren kept buying shares of Washington Post as it kept falling. Berkshire bought Washington Post at different prices of 27$, 23$ to 20.75$.
Warren Buffet was delighted that his patience had been rewarded as majority of the stocks were available in single digit PE Ratio. America was on sale and nobody wanted to buy stocks
Exiting From Small Cap Stocks At Height Of 2018
Quoting from my experience. In 2017 all small cap stocks were flying high. Everyone was talking about small cap stocks in India.
The way i gauged the Euphoria was that I was unable to find stocks of good companies in small cap space.
If by chance I managed to find a stock to invest then by next day it was already 10% higher. So i just exited all my positions as I became uncomfortable with such Euphoria.
As 2018 began the small cap index corrected from a high of around 9649 to a low of 5114 (46.9 % down from the top). Many small cap funds and investors in small cap companies suffered heavy losses.
Recently patience seems to have rewarded investors in smallcap index as the index has started to break out and closed at levels of 6344 as of 24th Jan, 2020.
Meditation. The Answer To Develop Patience
You heard it right. I have been meditating for 17 years and the practice has rewarded me in many ways.
A mind trained everyday through meditation learns to focus and analyze itself. When you meditate the spotlight is on your Mind.
You begin to experience its chatter, its fear, its anxiety about the future, its grand plans to conquer Earth, its likes and dislikes and memories from the past.
With practice the thoughts disappear and the meditator gets so merged in meditation that he/she is unaware of space, time and the act of meditation itself.
In such state of pure awareness deviod of thoughts a man realizes his true nature and exhibits patience never seen before.
In every act of day to day life a Yogi is extremely patient. He/she does not eat food in haste, does not bathe in haste, does not wear clothes in hurry. There is time for everything. He dwells in the act being performed at that time.
Just like nature. Everything happens in nature but at its own sweet time. There is no hush hush. No adrenaline rush and only patience.
So folks the better you become at inculcating patience the better you become in investing and life.
Next time the stock market throws a curved ball please come back to this article and remind yourself of the ways markets are going to try everything to test you.
Do try your hand at meditation. It is a wonderful mechanism to heal yourself, to slow down yet be more efficient at everything.
Let us try to become better human beings by developing more patience. Let us give time for great things to happen in our lives.
I will end this post with a question for you. What is one aspect of your daily life that demands a lot of patience? You can share your answers by writing in the comments section below.
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Disclaimer: Stocks mentioned in the post are only for tutorial purpose. Author does not recommend any stock. Please do your due diligence before investing.
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