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Most investors are aware of the tendency for markets to rise in the long-term due to economic progress and human innovation and ingenuity.
However, “long-term” sounds simple to utter but involves many inter-linked and consecutive segments of “short-term”. Such segments could easily cause investors to get distracted and forget that the mission of investing is to be able to generate a decent long-term return. The incessant noise, jarring news being blared from media outlets and also social pressure may cause investors to falter and their resolve to weaken.
The Need For Patience
Patience is an essential quality in investing and is an attribute which many investors underrate.
In my years of investing, I have witnessed one too many impatient investors who sold their shares too early, missing out on subsequent gains as the business continued to perform well.
Patience is also required to wait for a juicy bargain to appear which presents an attractive risk-return ratio for the investor. He can then swoop in with his cash to purchase it with a margin of safety. Impatient investors tend to fire too many bullets at less than attractive opportunities, netting them mediocre rather than exemplary performance.
Compounding Takes Time
I had written an article some time back on compounding our wealth, and this is a process which takes many years or even decades to achieve.
Many high-quality companies need time to execute their business strategies, and these strategies also need time to bear fruit. Warren Buffett often says that “You cannot get a baby in one month by getting nine women pregnant”, implying that there is no way to short-cut the process of giving birth as it definitely requires at least nine months!
Compounding is powerful in the later years when one’s portfolio gets much larger, though the early effects may not seem significant. This is why investors need lots of patience to stick to their investment plans and not waver.
The Foolish Bottom Line
Investors should focus on cultivating patience as this will enable them to stay the course through tough times and also remain focused on the positive effects of long-term compounding. When investors are less jumpy, they will also gain a sense of appreciation of how businesses build wealth for investors through careful planning and successful long-term execution.
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