If ever there was a well used phrase which is understated in its importance, "Patience is a virtue," would be the one which at the top of my list. As it relates to the topic of investing capital to achieve asymmetric returns, there might not be a more important subject than patience. What is patience then, exactly? Patience (or forbearing) is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without acting on annoyance/anger in a negative way; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties. Patience is the level of endurance one can take before negativity. It is also used to refer to the character trait of being steadfast.
Ah, yes, remaining steadfast under negative circumstances. In today's digital world, financial markets operate at lightening fast speeds. You can buy and sell stocks, bonds, options, currencies, swaps, private investments, businesses, bank loans, bankruptcy loans, and almost anything else, with a click of a mouse, or the touch of a phone. Given this backdrop, technology has helped to create tools which work completely in the opposite direction of what a primary ingredient for potential investment success might require. If you buy an asset, and it drops 20% very quickly, it is easy to click the mouse, touch the phone, and be done with the asset, and not have to even think about "having patience." Why does this matter to someone interested in investing capital?
The reason why it matters is because in many, many investment situations, especially with regard to stocks (i.e. businesses), patience is exactly what is going to be required in order to see the allocation of capital reach its potentially rewarding conclusion. For example, many businesses give you a time frame on their plan for changing a company, growing a company, implementing store closures, or executing potential acquisitions. The larger the business, usually the longer it takes to execute these plans. If the stated plans currently say that it will be in 2014 when shareholders should start to see results, to expect a different outcome would be unrealistic. As Warren Buffett so aptly states, " Some thing just require patience. You can't make nine babies in one month- it takes nine months to make one baby." Investing capital requires the same characteristic- yes, the p word. That Buffett guy, funny fellow, eh?
This week will bring an avalanche of corporate earnings as the profitability of the corporate world will be on full display. Citigroup started it off this morning, and others will follow suit- Coke, JNJ, Google, Microsoft, and plenty of others. The investment world has bid up the stock market to an extent where any kind of shortfall could bring a very swift and harsh impact. Still, plenty of stocks remain in the stratosphere and have been there for quite a long time.
More evidence of our dysfunctional government- sorry I bring it up-http://www.bloomberg.com/news/2013-07-15/reid-mcconnell-nomination-clash-risks-senate-gridlock.html
The oil companies continue to be attacked- http://www.bloomberg.com/news/2013-07-15/u-k-regulator-reviewing-criminal-probe-of-oil-benchmarks.html
I have been reading about BskyB, Uber, and other companies which are transforming how people use their own assets, many of which are completely underutilized-here, Uber takes it to a new level-http://techcrunch.com/2013/07/15/uber-fare-splitting/
Thanks for reading the blog and I hope you are having a great summer! If you have thoughts, comments, or questions about the blog, please share them!
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.