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1 Crucial Thing Required In Investing: Patience

Investing can be a frustrating affair.

You buy a great company with growing earnings at what you think is a reasonable price and naturally expect to be rewarded. But then you wait… and wait… and wait… and you get nothing. You become frustrated and you sell, only for the stock to then shoot up to the skies. Has this happened to you before?

Thing is, these things happen in investing – and perhaps more commonly than you might think. Great companies can see their share prices do nothing for years, only to then make some really strong returns in a relatively narrow span of time.

In Singapore’s stock market, Straco Corporation Ltd (SGX: S85) is a great example. Since its listing in February 2004, Straco has seen its shares make a very decent gain of 176% in price. In comparison, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has climbed by just 41% over the same period.

But as you can see in the chart below, the company’s shares had spent some nine years, with February 2004 as the starting point, doing nothing (clocking some big losses in the interim, in fact). It wasn’t until 2013 had arrived before Straco’s shares started moving up significantly. In other words, the lion’s share of Straco’s returns over the past 12 years since its IPO had come from just the last three years.

Straco Corporation Share Price Chart
Source: S&P Global Market Intelligence (click chart for larger image)

In the following chart, you can see how Straco’s profit had grown steadily – and markedly – since 2004.

Straco's earnings per share from 2004 to 2014
Source: S&P Global Market Intelligence (click chart for larger image)

There are two important takeaways here.

First, patience is required in investing. Warren Buffett, one of the greatest investors around, had once said that “if a business does well, the stock eventually follows.” The operative word here is “eventually.” Notice he did not mention that a company’s share price has to move in lock-step with its business growth over the short-term. As we’ve seen with Straco, a company’s stock market returns can come in sporadic bursts – and crucially, it’s hard to tell when those bursts might occur.

2008 saw Straco deliver earnings that were 160% higher than that seen in 2006. Yet, Straco’s shares ended 2008 at a price of S$0.09, some 25% lower than where they were at the end of 2006. In 2010, Straco’s earnings per share more than doubled from 2009; the company’s share price at end-2009 and end-2010 was essentially the same (S$0.13 and S$0.14, respectively). There was nothing special that happened in 2013 that told investors, “now’s the time for the company’s shares to start climbing and never look back.”

This brings me to the second takeaway: Trying to time the market can be extremely costly. When a company’s stock market returns are generated in narrow and unpredictable spans of time, you may miss out on the bulk of a stock’s returns if you’re trying to jump in and out of its shares.

Summing up my takeaways succinctly is the following quote by Jeffery Gundlach, a highly successful bond fund manager: “You make 80% of your money in 20% of the time in investing and you have to be patient.” Keep this in mind when you invest.

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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 Straco Corporation.