Role of Patience

[Thiru]

All,

 

I am just starting into the field of value investing and while reading about Warren Buffett / Charles Munger / Philip Carret, they repeatedly mention the importance of patience. With regards to patience, I have few questions. I would be immensely grateful if the experts in the board can spend few of their valuable time in expaning on this.

 

1. What do Mr. Buffett / Mr. Munger / Mr. Carret mean when they say patience?

 

2. How is patience going to help in the investing process? Is it going to help when one says no to an investment and / or one selects to back up the truck and / or one decides to stay and / or increase the stake and / or decrease the stake and / or part with the stock and / or other scenarios?

 

3. Mr. Buffett and Mr. Munger mention about being honest with oneself. Given that, how does one find out for himself if he is patient?

 

4. If one realizes that he / she is not patient, what is the best way to improve patience? Hopefully this includes a robust form of feedback loop that tells him / her if he / she is going in the right direction.

 

Sincere regards,

Thiru

[Guest longinvestor]

Thiru, I believe you mean to ray "Role" not "Roll" in the title of this thread. I suppose you are the one who can edit this. Please do.

 

That said, you are bringing up the one most important trait of a value investor. Here are my takes of what Buffett/Munger mean

1). What do Mr. Buffett / Mr. Munger / Mr. Carret mean when they say patience?

When they come across an interesting idea, they ask if the price is right. If the answer is NO, not at this time, they wait. And they wait and wait until the price becomes right. In some cases this has been years, if not decades. Of course when they buy, they take the whole stack.

 

2) How is patience going to help in the investing process? Is it going to help when one says no to an investment and / or one selects to back up the truck and / or one decides to stay and / or increase the stake and / or decrease the stake and / or part with the stock and / or other scenarios?

Mostly they buy and hold through the business' ups and downs and this is another kind of patience. Occasionally they sell their stake, most of these have been mistakes they made.

 

3) Mr. Buffett and Mr. Munger mention about being honest with oneself. Given that, how does one find out for himself if he is patient?

I don't know is the intellectual honesty and patience are related. The intellectual honesty has to do with passing on ideas outside their circle of competence.

 

4) If one realizes that he / she is not patient, what is the best way to improve patience? Hopefully this includes a robust form of feedback loop that tells him / her if he / she is going in the right direction

don't know exactly how WB/CM improved their patience, but passing the ideas between the two of them is perhaps a way to filter out occasional impatience (wanting to buy something). We also know WB reads a lot. Reading perhaps improves your patience if you build knowledge in the manner of a perpetual learning machine. And it helps to have a hobby that you spend a lot of time with, so that you don't become a busybody investor. And also, WB mentions that each investor should have a ticket with twenty punch holes. You punch a hole for each investment decision you make and when the twenty holes are punched, you are done for this lifetime!

 

Good luck but it is a good topic. I'm certain others have a different take on this.

[boilermaker75]

 

1). What do Mr. Buffett / Mr. Munger / Mr. Carret mean when they say patience?

When they come across an interesting idea, they ask if the price is right. If the answer is NO, not at this time, they wait. And they wait and wait until the price becomes right. In some cases this has been years, if not decades. Of course when they buy, they take the whole stack.

 

 

An example, Buffett had been reading IBM's annual report every year for 50 years before he purchased $10.7B of IBM stock in 2011.

[SharperDingaan]

For the most part you either have this (dull Type B's), or you don't (impatient Type A's). It can't really be learnt either, as learning typically evaporates under pressure ... so know yourself, & play only to your strengths.

 

The good news is that the Type B's usually win over the long haul, simply because the Type A's will make errors.

 

SD

 

[yadayada]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

[LongHaul]

 

Great questions about one of the most critical skills.  I'll give it a try.

 

All,

 

I am just starting into the field of value investing and while reading about Warren Buffett / Charles Munger / Philip Carret, they repeatedly mention the importance of patience. With regards to patience, I have few questions. I would be immensely grateful if the experts in the board can spend few of their valuable time in expaning on this.

 

1. What do Mr. Buffett / Mr. Munger / Mr. Carret mean when they say patience? 

 

I think it is the ability to wait for the right opportunity, the ability to wait for it to go up, and at least in part the ability to stay in cash and not get sucked into folly when many are overpaying and it looks like easy money - like now especially with US small caps.

 

 

2. How is patience going to help in the investing process? Is it going to help when one says no to an investment and / or one selects to back up the truck and / or one decides to stay and / or increase the stake and / or decrease the stake and / or part with the stock and / or other scenarios?  Sounds simple but I don't think it is always easy - but if you have a 3+ yr time horizon that gives you an immense advantage vs others who have a 3 month time horizon. 

3. Mr. Buffett and Mr. Munger mention about being honest with oneself. Given that, how does one find out for himself if he is patient?

 

4. If one realizes that he / she is not patient, what is the best way to improve patience? Hopefully this includes a robust form of feedback loop that tells him / her if he / she is going in the right direction. 

 

I think patience is a skill that can be learned, honed and improved.  I recently learned this and I think it is true.

 

 

Sincere regards,

Thiru

 

 

[compoundinglife]

All,

 

I am just starting into the field of value investing and while reading about Warren Buffett / Charles Munger / Philip Carret, they repeatedly mention the importance of patience. With regards to patience, I have few questions. I would be immensely grateful if the experts in the board can spend few of their valuable time in expaning on this.

 

1. What do Mr. Buffett / Mr. Munger / Mr. Carret mean when they say patience?

 

2. How is patience going to help in the investing process? Is it going to help when one says no to an investment and / or one selects to back up the truck and / or one decides to stay and / or increase the stake and / or decrease the stake and / or part with the stock and / or other scenarios?

 

3. Mr. Buffett and Mr. Munger mention about being honest with oneself. Given that, how does one find out for himself if he is patient?

 

4. If one realizes that he / she is not patient, what is the best way to improve patience? Hopefully this includes a robust form of feedback loop that tells him / her if he / she is going in the right direction.

 

Sincere regards,

Thiru

 

1. Charlie and Warren have said (I am paraphrasing) that a few really good decisions over one's investing career can end up being the determining factor in supieror performance.  Look at the Daily Journal Company's investing habits as an example.

 

"“The Stock Market is designed to transfer money from the Active to the Patient."- WEB

 

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." - CM

 

"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back." - CM

 

2. I believe it helps with both aspects metioned.

 

"The big money is not in the buying and selling … but in the waiting." - CM

 

"In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.” - CM

 

3. I try to ask myself questions like this:

 

If I was unable to sell this stock/position for the next 10 years would I still make this investment? This question usually gives me a good idea of how confident and comfortable I am in with an investment. It has changed my mind on some really cheap stocks because I realized I probably don't know enough to understand the risks I am taking on. In some cases I have passed on the opportunity all together or taken a much smaller position because of it.

 

4. Some people meditate to help calm the mind, some people find hobbies to take their mind off the stock market. I would suggest be very slective about what media you watch/read in an effort to reduce noise. You need to experiment to find out what works for you. I think in the case of investing, your feedback loop will be your results over an extended period of time.  Next time you are at the grocery store pick the longest line and commit to waiting in it, practice paitience.

[Uccmal]

Lots of good thoughts.  I am impatient with some things, and patient with others. 

 

This is very philosophical.  Patience is a mixture of acceptance, and control over ones situation.  It partly arises from experience.  The best investors here are probably the most self reflective.  We have all ridden stocks down by more than half, many times, and then ridden them back up to multiples of our purchase price. 

 

To do that you need to feel comfortable with the position which is the result of the "circle of competence" thing.  Then you need acceptance that it is not going to unfold in the way, or in the time frame, you intended.  Then you need to accept that you wont, and cannot know even a fraction of a situation. 

 

You need to be patient with your mistakes, and learn from them rather than beat yourself up.  I know a little bit about alot of things, but am an expert at nothing.  Knowing this allows me to make mistakes and move on, often very quickly. 

 

As Kraven and I often mention it comes down to knowing yourself.  This morning I screamed at my son - exhibiting my impatience.  I also yelled at reps from Rogers Cable, while I was cancelling my cable, because they are so difficult.  When it comes to investing, I am very different.  I haven't panicked in 15 years. 

 

No easy answer.

[Liberty]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

 

As Churchill said, 'you shape your houses, and then they shape you'.

 

The recent interview with Guy Spier where he describes his system to be patient is a great example of that. If you know yourself to be impatient, you can create an environment where it's easier to be patient (ie. a room with no electronic devices, don't look at stock prices during the day and only submit orders when markets are closed, move to a calmer city, etc).

[yadayada]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

 

As Churchill said, 'you shape your houses, and then they shape you'.

 

The recent interview with Guy Spier where he describes his system to be patient is a great example of that. If you know yourself to be impatient, you can create an environment where it's easier to be patient (ie. a room with no electronic devices, don't look at stock prices during the day and only submit orders when markets are closed, move to a calmer city, etc).

That is an interesting concept. I read about research done on the link between success and self control. It turns out that more succesful people make sure that they put themselves in a enviroment where self control is easier. They do not necessairily have more self control.

 

Basicly, if you want to lose weight, do not buy cookies and do not go to the supermarket if you are hungry. And do not live across a really good bakery.

[Liberty]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

 

As Churchill said, 'you shape your houses, and then they shape you'.

 

The recent interview with Guy Spier where he describes his system to be patient is a great example of that. If you know yourself to be impatient, you can create an environment where it's easier to be patient (ie. a room with no electronic devices, don't look at stock prices during the day and only submit orders when markets are closed, move to a calmer city, etc).

That is an interesting concept. I read about research done on the link between success and self control. It turns out that more succesful people make sure that they put themselves in a enviroment where self control is easier. They do not necessairily have more self control.

 

Basicly, if you want to lose weight, do not buy cookies and do not go to the supermarket if you are hungry. And do not live across a really good bakery.

 

I think Buffett staying in Omaha probably helped him a lot. He stayed away from all kinds of bad influences and from a whole lotta noise and time drainers.

[Uccmal]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

 

As Churchill said, 'you shape your houses, and then they shape you'.

 

The recent interview with Guy Spier where he describes his system to be patient is a great example of that. If you know yourself to be impatient, you can create an environment where it's easier to be patient (ie. a room with no electronic devices, don't look at stock prices during the day and only submit orders when markets are closed, move to a calmer city, etc).

That is an interesting concept. I read about research done on the link between success and self control. It turns out that more succesful people make sure that they put themselves in a enviroment where self control is easier. They do not necessairily have more self control.

 

Basicly, if you want to lose weight, do not buy cookies and do not go to the supermarket if you are hungry. And do not live across a really good bakery.

 

Makes sense.  We dont keep ice cream in the house because a certain someone is known to eat a litre a day - it isn't my wife or kids!

[Thiru]

Thanks for all your responses.

 

LongHaul... I have sent you a follow up question via PM. Advance thanks.

[spartansaver]

if you are a type A, find other hobbies or interests to release that energy in. If investing is your sole thing, you are likely to make mistakes.

 

As Churchill said, 'you shape your houses, and then they shape you'.

 

The recent interview with Guy Spier where he describes his system to be patient is a great example of that. If you know yourself to be impatient, you can create an environment where it's easier to be patient (ie. a room with no electronic devices, don't look at stock prices during the day and only submit orders when markets are closed, move to a calmer city, etc).

That is an interesting concept. I read about research done on the link between success and self control. It turns out that more succesful people make sure that they put themselves in a enviroment where self control is easier. They do not necessairily have more self control.

 

Basicly, if you want to lose weight, do not buy cookies and do not go to the supermarket if you are hungry. And do not live across a really good bakery.

 

Makes sense.  We dont keep ice cream in the house because a certain someone is known to eat a litre a day - it isn't my wife or kids!

 

Bringing up an old thread, but I remember Spier talking about limiting the number of times looking at stock quotes and for me it has made all the difference. I have constantly in the past looked up stock quotes multiple times a day and in the last two months have gone to limiting myself to only once on Friday. The convergence of the market's idea of value versus my own have been dramatically reduced by this simple mind constraint. If you look at something enough times you will start to believe it's true and I think this is such a simple concept that has for me had a powerful effect.

[Liberty]

Bringing up an old thread, but I remember Spier talking about limiting the number of times looking at stock quotes and for me it has made all the difference. I have constantly in the past looked up stock quotes multiple times a day and in the last two months have gone to limiting myself to only once on Friday. The convergence of the market's idea of value versus my own have been dramatically reduced by this simple mind constraint. If you look at something enough times you will start to believe it's true and I think this is such a simple concept that has for me had a powerful effect.

 

I know it's the right approach, but I haven't had the discipline to do that yet. I hope to be able to improve on that front, because looking at prices more often than necessary uses a lot of mental energy to little effect.

[innerscorecard]

For me, the most important attribute of patience is to think of things on my time scale, not the time scale of others, which inevitably happens when you compare yourself to others. When I don't compare myself to others, I find that my time scale naturally slows down.

[Travis Wiedower]

I know it's the right approach, but I haven't had the discipline to do that yet. I hope to be able to improve on that front, because looking at prices more often than necessary uses a lot of mental energy to little effect.

 

In recent months I had noticed myself checking prices on Interactive Brokers, Facebook on my phone, etc several times during the day and it was pissing me off. I decided every time I do something like this that isn't productive I have to donate $10 to the American Heart Association (I have congenital heart disease). It penalizes me but it also goes to a good cause. It made a HUGE difference immediately. I only sent in $10 last week  :)

[Jurgis]

Not to derail people from the straight and narrow of not checking stock prices every day, but...

 

Even with the "efficient market"  ;D , if you are investing in microcaps, sometimes there are opportunities to buy (or sell) that last a day or less. Even with large caps, TLM takeover investment opportunity lasted only one day and yielded about 48% return ( http://finance.yahoo.com/echarts?s=TLM+Basic+Tech.+Analysis&t=3m see Dec 15 - 16).

 

Obviously, this needs to be weighed against your investment style, your time cost, etc. For five stock, Buffetty, hold forever portfolio daily price checking is definitely not productive or useful. :) For some value investors it might be.

[spartansaver]

Not to derail people from the straight and narrow of not checking stock prices every day, but...

 

Even with the "efficient market"  ;D , if you are investing in microcaps, sometimes there are opportunities to buy (or sell) that last a day or less. Even with large caps, TLM takeover investment opportunity lasted only one day and yielded about 48% return ( http://finance.yahoo.com/echarts?s=TLM+Basic+Tech.+Analysis&t=3m see Dec 15 - 16).

 

Obviously, this needs to be weighed against your investment style, your time cost, etc. For five stock, Buffetty, hold forever portfolio daily price checking is definitely not productive or useful. :) For some value investors it might be.

 

Well from that chart it would have been obvious that a cup and handle was forming :) , but in all seriousness there will always be rewards and drawbacks to any constraint. It's figuring out if that reward is greater than the risk of missing a TLM takeover. I didn't follow it all, but if you were initiating a position it looks like you had ample opportunity in the two weeks leading up to the takeover to make a pretty profit. You could also put in a limit buy although I don't personally do that kind of thing, bad things can happen.