We are not a patient species. It’s as if basic human nature, coded deep into our DNA, tells us that when something unexpected happens we must react. We must do something proactive about it. I suppose if early man were in the forest and heard the footsteps of a predator nearby… a predator that perhaps had an acquired taste for early man, then his life depended on him fighting or fleeing, but not remaining calm and patient while the predator jumps on him and devours him.
So it doesn’t surprise me in the least, and actually makes quite a bit of sense really, when there is a catastrophe of the least proportion (which the financial press explodes into something that sounds like Armageddon in the greatest proportion) that many investors can’t get to their accounts fast enough to react with a decisive strategic change to their portfolio… meaning, they buy something else or sell to cash. Then they can go about their day, knowing that they have done themselves good by avoiding the catastrophe and can rest comfortably with their investments now safe and secure.
Tsk tsk. We’re not a patient species.
Warren Buffet really nailed it when he said, “The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.” You’d think more people would be listening… the guy is pretty successful at this stuff.
Last month we started the discussion that there are three principles that investors simply must have if they intend to capture the global capital market rate of return. The first, as we learned last month is faith in the future of capital markets.
Followed closely on the heels of faith, we must have the patience to stay on strategy, knowing that in the end markets always prevail. Not to be dissuaded by the idea-du-jour or your buddy screaming in your ear that you are going to lose everything in your globally diversified account because “this time it’s different.” Just since the mid-1940’s we’ve had 13 “This Time It’s Different” markets where the bottom has fallen out on average over 30%! That’s on average about once every five years. And every single time it turns out, it wasn’t different. The market decided it had enough of whatever was going on and roared back to a new high, rewarding the patient investor with higher returns and more wealth, and punishing those who had an early-man reaction to fight or flee.
The problem is we have so many opportunities to lose patience. You simply can’t turn on the TV or log onto the Internet without somebody telling you that you have to be doing something different, RIGHT NOW, with your investments. Almost nowhere will you find the advice that says, “Hey, just buy everything in as many non-correlated asset classes around the globe as you can and forget about. Go to the beach. Live your life. Do something productive. But don’t change your investment plan because, boring as this is… it works and you will reach your goals.”
Nope. That doesn’t sell. Patience… it’s what’s good for you.