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The Simple Key to Investing Well

“When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever.”

Warren Buffett, arguably the best investor of our generation, wrote the above in his 1988 Berkshire Hathaway annual shareholder letter.

I know – a holding period of “forever” sounds a little ridiculous. And in fact, it’s not a secret that Berkshire, the investment holding company and conglomerate which Buffett controls, buys and sells shares from its portfolio of investments regularly. But by using the word “forever”, what Buffett has done is to really drive home the importance of patience when it comes to investing.

I’d let my colleague Morgan Housel illustrate this point in an old 2008 article of his:

“[Berkshire’s annual reports] include a list of the largest publicly traded companies in Berkshire’s portfolio, along with the prices paid and the current value of those investments. That list includes the big ones… but the company that sticks out like a sore thumb is Washington Post.

Why does it stick out? Because Berkshire paid just $11 million for an investment worth nearly $1.4 billion at the end of 2007 – a 127-bagger! Of all the stocks listed, Washington Post is the biggest gainer – by a factor of 12. While relatively small in dollar terms, it’ll certainly go down as one of Buffett’s greatest investments.

But do you know what happened to the stock right after Buffett began buying shares in 1973? Shares plunged 20% and stayed there, not for a few months, but for three years. It was 1976 before Buffett was back in the black, and it was 1981 before WaPo traded at Buffett’s estimate of its 1973 intrinsic value.

Think about that: What ultimately became one of Buffett’s greatest investments began with three years of double-digit losses and mind-numbing stagnation. Patience pays, Fools.”

Lest you think that patient, long-term investing only works in the Western markets, it has also done wonders in our local market. Raffles Medical Group Ltd. (SGX: R01) is a good case in point. Investors who held on to the healthcare operator’s shares for more than nine years between March 1999 and November 2008 would have nothing to show for it – shares of the company traded at S$0.56 in both periods (though admittedly, there were some strong fluctuations in between). But today, with the company’s earnings up more than 30-fold since March 1999, its shares have jumped by close to 600% at current prices of around S$4 a pop.

Just like with WaPo, a company like Raffles Medical only managed to reward its shareholders handsomely after periods of “mind-numbing stagnation.”

Not everyone would have the same type of investing acumen Buffett possesses. But, you can still invest in a manner akin to him by doing something simple: Invest with the long-term in mind. The very long-term.

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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 writer Chong Ser Jing owns shares in Berkshire Hathaway and Raffles Medical Group.