It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. Blaise Pascal, the 187th century French mathematician, said, ” All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” However, as equity investors, we too often do the opposite and the result is captured in the chart below.
The introduction of ETFs some years ago provided investors with the opportunity to earn market returns at as fraction of the cost of actively managed funds. What a wonderful way for equity investors to sit on their ass and watch their portfolios compound in value. But that is not what happened. According to John Boyle, founder and retired CEO of Vanguard, the average turnover for an ETF is 880% per annum, compared to 12% for a standard stock. It has gotten worse. This is not investing, this is speculation. For various reasons, many investors simply are not giving their investments time to compound in value.
Patience is a critical component in any successful investment strategy. It allows you to think about stocks in decades not in days or quarters like most professionals and benefit from the long-term trends in the market. Further, being patient allows business fundamentals, both earnings and dividend growth, to assert themselves and ultimately to be reflected in the share price. Lastly, being patient allows our investments to compound in value.
I have no idea how the market or any individual stock will perform in the short term and frankly no one else does. You would be far better off purchasing, as we do, high quality dividend paying stocks with durable competitive advantages and sitting on your ass.
“The stock market serves as a relocation center at which money is moved from the active to the patient.” – Warren Buffett