Are Your Investments Plain Boring? Think Again

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

– Warren Buffett

The quote above says it all.

As I was reading an article from the New York Times on investing, Buffett’s saying sprung to mind. The article in question talked about why investing should be done patiently and that it may actually be unexciting at times, for some.

The author, Carl Richards, wrote:

When done correctly, investing should look a lot like growing a giant oak tree. It’s boring, but as Warren Buffett said, someone is sitting in the shade of an oak tree today because someone did the boring work of planting and taking care of it decades ago.

In other words, it might be short-term boring, but in the long term, it’s very exciting. What would happen if you tried to make the process of growing an oak tree more exciting? Perhaps you’d dig up the tree at the end of every month to see if the roots are growing. It might make things more interesting, but you’d do enough damage that you’d never end up with any shade.

Just like Buffett’s quote right at the start, Richards alludes to the importance of having patience in the world of investing.

Just sit there – and do nothing

Investing requires patience (lots of it, in fact!). It involves buying into businesses and riding on their growth for the long-term. The thing to note here is that businesses don’t flourish overnight. They take time to grow, just like an oak tree.

Charlie Munger, Buffett’s investing side-kick, once said that “investing is where you find a few great companies and then sit on your ass.” With such a statement, I guess it wouldn’t be a surprise to find that Munger just buys a business and sits on it for ages. By buying and selling a share unnecessarily, we incur brokerage charges and harm our investment performance. The only person who would become rich by our antics of dancing in and out of a business is our stock broker.

If an investor had sat on his ass patiently and invested in blue-chip shares such as Singapore Exchange Limited (SGX: S68), Jardine Strategic Holdings Limited (SGX: J37), and Dairy Farm International Holdings Ltd (SGX: D01) over the past decade, he would have amassed returns of more than 300% in each.

Company Price: 2 September 2004* Price: 2 September 2014 Returns
Singapore Exchange S$1.45 S$7.07 388%
Jardine Strategic US$5.48 US$36.75 571%
Dairy Farm US$2.06 US$10.30 400%
*Prices are adjusted for dividends and stock splits

Source: Yahoo! Finance

Do bear in mind that in the intervening period between September 2004 and today, the market went through lots of “mood swings”. One of the biggest was the Great Financial Crisis of 2008-2009, during which the Straits Times Index (SGX: ^STI) fell by two-thirds from peak to trough. Despite such turmoil, the three STI constituents have gone on to reward patient long-term shareholders handsomely.

Foolish Bottomline

Just as a baby cannot be made in a month by making nine women pregnant, a share simply cannot grow 300% overnight. For you to sit in the shade of an oak tree 10 years from now, you’d have to do the mundane work of planting it, watering it, taking care of it, and then simply letting it grow. Everything has its time and place, including investing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.