Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant. — Warren Buffett It is often said that patience is a virtue. This idiom may apply to investing as well, as the quote above from Warren Buffett would suggest. In fact, Buffett believes that patience is an important trait for successful investing. So with that in mind, what kind of patience is Buffett asking for? Below, I would like to suggest three areas of patience to consider:…
Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.
— Warren Buffett
It is often said that patience is a virtue. This idiom may apply to investing as well, as the quote above from Warren Buffett would suggest. In fact, Buffett believes that patience is an important trait for successful investing. So with that in mind, what kind of patience is Buffett asking for?
Below, I would like to suggest three areas of patience to consider:
Patience for the right business
"The stock market is a no-called-strike game. You don't have to swing at everything — you can wait for your pitch." – Buffett #investing
— Investment Wisdom (@InvestingCanons) September 17, 2014
At the Fool, we believe that successful investing should start with the right business. Currently, there are more than 700 companies in Singapore’s stock market. Now, that’s quite a large number of companies to wade through. And that also means that there are plenty of investing ideas that can come our way.
For instance, oil and gas companies bore the brunt of the decline in oil prices late last year. Currently, shares of the rig builders Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S51) remain 20% and 30% lower, respectively, compared to where they were at the start of 2014.
That big drop in price for Keppel Corp and Sembcorp Marine might attract investors. But, there is a fine distinction to be considered here: A drop in share price alone should not entice the patient Foolish investor to act.
The goal of a Foolish investor is to hold a company for the long term, therefore it may be in his or her best interest to exercise patience in picking out only the best businesses to buy. To learn more about the Keppel Corp and SembCorp Marine, you can check out here and here.
Patience for the right share price
Buffett considers the concept of margin of safety as one of the most important things in investing. The concept of margin of safety caters for “things unknown” which may unexpectedly happen to the businesses of the share you’re looking at.
As such, if your estimate of a company’s intrinsic value is $5 per share, your target price to purchase shares of that company may be several notches lower than $5.
Such a practice may require lots of patience from you though, as a company’s share price may remain elevated at much higher levels for a long-time before it drifts down to the appropriate level at which you can invest with a sufficient margin of safety in place to help protect against any unexpected downsides.
Patience for long term business success
The next step in patience would be the audacity and tenacity to hold stocks for years or even decades. This is to give the management team behind a company time to drive the business to greater heights.
How much patience is needed you may ask? I’ll turn to investing maestro Peter Lynch for this (emphasis mine):
“People want instant gratification, but that’s a guaranteed way to lose money in stock investing. From one year to the next, the stock market is a coin flip: it can go up or down. The real money in stocks is made in the third, fourth and fifth year of your investment, because you are participating in the company’s earnings, which grow over time.”
It’s the patience in holding a stock for five years which has allowed investors in a company like tourist asset owner Straco Corporation Limited (SGX: S85) to enjoy returns of 845% since 23 May 2010. Returns like these do not happen overnight, therefore patience in holding a growing company’s shares is of paramount importance here.
I hope you found the above three areas of focus useful. Fool on!
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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 Chin Hui Leong doesn't own shares in any company mentioned.