Why patience pays off

Art history students at Harvard University almost always have a boring first day. Their task, says Prof Jennifer Roberts, is to go to the local museum, choose a favourite piece of art, then sit down and look at it – for three full hours.

If the thought of that doesn’t scare you just a little, count yourself lucky. We’ve become so used to getting our whims fulfilled immediately by the internet that attention spans have fallen by a third since 2000.

Prof Roberts knows the task is boring and that three hours is a 'painfully long time’. But her purpose isn’t to encourage concentration. Instead, she wants her students to feel the restlessness build, accept it, and push onwards – whereupon they see things in the art that their passing glances missed. Her point is that in the art world, as in investing, patience is rewarded.

Impatience has significant repercussions for your portfolio because it discourages saving and often leads to irrational buying and selling decisions.

Imagine that I offered you $10 today or $11 a week from now. If you’re like most people, you’ll prefer the lesser amount today, despite the extremely favourable interest rate built into the deal. This is because evolution has equipped us with a very strong ‘present bias’.

Furthermore, research at the University of California found that those who trade the most lagged the overall market’s performance by 6.5%. For anyone who shuns a 'buy and hold' philosophy, brokerage fees can quickly bite into their returns.

Thankfully, as Warren Buffett likes to say, investing is a no-called-strike game. There’s no penalty for sitting on the sidelines other than opportunity cost, so it’s better to patiently wait for the 'fat pitch' with a wide margin of safety.

And patience is just as important for holders as it is buyers. Ideas can take several years to play out and the volatility – or lack thereof – in the interim can be gut-wrenching. But, so long as your investment case remains intact, it usually pays to ride it out.

The share price of Vision Eye Institute barely budged for more than a year following our Buy recommendation at 58 cents back in March 2014. We nearly fell asleep. Then, when a takeover offer arrived, the stock jumped 90% in a matter of months. To paraphrase Jesse Livermore, it's not the buying or selling that matters – the big money is made in the waiting.

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