Investing well requires multi-faceted skills and traits. On top of learning the language of investing (i.e. accounting), one must have discipline and patience to be a great investor. Warren Buffett once quipped:
“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.”
Discipline involves sticking to our criteria for picking stocks. For example, I look out for companies that have growing revenue, net profit, and free cash flow. The company also should have manageable debt on its balance sheet. Not many companies fit the criteria but if we are disciplined enough to pick only the right stocks, the probability of doing well over the long-term is tilted in our favour.
On top of choosing the correct businesses, we must also have the discipline to stand behind our companies even as they go through the various economic cycles. Benjamin Graham, the father of value investing, once said:
“In the short term, the market is a voting machine but in the long term, it is a weighing machine.”
Right now, the US-China trade war escalation has caused stock markets all over to fall. Usually, during such cases, most stocks will get hit as people sell out on fear. Even companies that have nothing to do with the trade war might get hit. But if we are disciplined enough to hold onto our shares during such fearful times, and also have the discipline to buy even more shares, we will do better once the stock market recovers.
Aside from discipline, the investor must also have patience in the stock market to be rewarded handsomely. Rome wasn’t built in a day and certainly, businesses also take time to grow.
For instance, bus and rail services provider SBS Transit Ltd’s (SGX: S61) shares were moving sideways for some time in 2017 before shooting through the roof early this year.
SBS Transit reported higher net profit and a bumper dividend for its 2018 financial year. With that, its shares rose around 52% from the start of 2019 to close at S$4.10 on 5 August 2019. What legendary investor Peter Lynch said in his book, “One Up On Wall Street”, rings true here:
“It takes remarkable patience to hold on to a stock in a company that excites you, but which everybody else seems to ignore. You begin to think everybody else is right and you are wrong. But where the fundamentals are promising, patience is often rewarded.”
The market seemed to be ignoring SBS Transit’s strong financial performance ever since the company transitioned to the Bus Contracting Model on 1 September 2016. The following shows SBS Transit’s revenue and net profit trend over the last five financial years:
Source: SBS Transit 2018 annual report
You can see how net profit accelerated in 2017 and 2018. When SBS Transit reported its 2018 numbers, the market took notice of the company and re-rated its shares upwards. Those who sold out their shares prematurely due to “lack of excitement” in SBS Transit’s shares may now be rueing their mistake.
The Foolish takeaway
In investing, knowing how to analyse businesses is important. However, just as important are soft skills such as discipline and patience. These two traits are usually brushed aside by investors and doing so may cause our portfolios to suffer. If we want to do well in investing, we should have the discipline and patience to stick by our companies through thick and thin.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of SBS Transit Ltd. Motley Fool Singapore contributor Sudhan P owns shares in SBS Transit Ltd.