The results of returns are often heavily influenced by patience. A patient investor can navigate the complexities of the market while remaining disciplined and calm for long durations of time. Impatience is a characteristic that is lacking in the markets. I believe if investors cultivated the virtue of patience, they would be able to combat negative behaviours and achieve their long-term goals.

The stock market is a device for transferring money from the impatient to the patient.

Warren Buffett

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The definition of patience is the capacity to accept or tolerate delays, problems, or suffering without becoming annoyed or anxious. The inverse of that sounds a lot more familiar!

In a world that epitomises everything “Now” it becomes very hard to practice the virtue of patience. We have on-demand…well everything. In our personal lives, we have a multitude of services at the tip of our fingers, ranging from on-demand streaming to instant food delivery, and rapid flows of information. People don’t want to wait anymore. With the evolution of technology and innovation came the comfort and convenience that gave way to impatience.

Waiting patiently for the right opportunities to present themselves, waiting patiently for your investment thesis to run its course, patiently waiting for compounding to work. Patience is so important and the most underused skill we should all be using.

Investors are becoming more impatient.

Market short-termism (Impatience) dominates the market today with a much higher “churn” rate than decades ago. So-called “Long-Term” investors are actually traders, with high Portfolio Turnover. There are some external factors that may contribute to overall impatience. It can stem from uncertainty in the economy and the market cycle. With the pandemic, rising inflation, rapid interest rate hikes, these factors can can create confusion for investors not knowing where to allocate capital.

The holding period on stocks over the last 20-30 years has shrunk significantly as depicted in the below chart. Whilst there may be many reasons to explain this phenomenon, I believe impatience is one of the main culprits.

Shareholders are becoming a lot more impatient, punishing stocks that don’t meet their expectations of returns within their timeframe. This has contributed to a high CEO “churn”, as management is moved on due to lacklustre performance. CEO tenures have shrunk as a result which does contribute to the company’s performance, how can a strategy and team create a winning company if it is always new?

The market is also a lot more volatile, affected by high-frequency trading, and the accessibility of the market leading to more inexperienced people trading and not investing.

With all these factors, I still believe impatience mainly arises due to the behaviour of the investor.

What are some of the causes of impatience?

Impatience is taking over our investing behaviour. In my opinion, the below unorthodox points are the main areas why I believe the markets now lack patient investors.

Impatient investors will seek more immediate investment returns. Whether it’s from over-trading more frequently or inflating their investment skill (Overconfidence Bias) to help them move to the best investments.

Increased information:

There is always in excess too much information. This abundance of information creates holes in the research process. For example, vetting companies becomes harder because you not only have to sift through the information but then evaluate the source and credibility of it. This can cause investors to rush.

Ease of Investing:

It is a lot easier and more affordable to invest. Online brokers with low to zero trading fees create a lot more activity. It does not cost as much. It is easy to get in and out. Liquidity is there. As a result, investors can move in and out of markets a lot more flexibly than they did 10-20 years ago.

Instant Gratification:

Our impatience as a society has grown. Investors want it all now, everything else is on demand so why shouldn’t wealth creation be? The media, social media icons, the craze of crypto, etoro, GameStop, all the fortune maker ambassadors pushing the idea that you too can become an instant success. We’re not prepared to wait.

Knowledge Gap:

It has become very easy for investors to enter the market which I believe creates a huge education gap. If an investment style does not work, a strategy does not work, or an idea does not play out within Our expectations of how it should, we simply change. With all the access to information, and investing gurus online, we outsource our thinking which creates impatience.

Lack a plan:

The biggest cause of impatience is not having a plan. As Seneca says, “If you don’t know the port you sail to, no wind is favourable”. I believe this contributes to a lot of the reasons why impatience arises. Investors fail to have a philosophy, a plan, a strategy some sort of process. Investing without a plan is like trying to build a house without a blueprint.

All of these gaps cause investors to “tinker” too much. Trying to rebalance too often, buy and sell too often. Thinking that every small decision and “tweak” has a profound impact on the result.

Impatience causes investors to lock in losses, trigger a sell at the worst time, and interrupt the process of materialising the full returns of an idea. Often leading to the onset of a lot of anxiety and other emotional traits that lead to irrational decision-making.

The patient investor closes the gap.

The below image is what I call the “Patience Gap”, it is a quick illustration of how impatience causes investors to fall short of the potential returns. It can represent an individual security or it can represent a long-term retirement investing strategy such as dollar cost averaging. The gap in returns is often caused by not “staying the course”.

Impatient investors interfere with the potential of returns. Investors know compounding works over the long term but want it faster and disrupt it. When evaluating investments and taking positions investors generally should have an idea of the type of returns, they are expecting. Otherwise, why invest?

Why don’t returns then match the full potential?

Investors don’t let the thesis play out, selling too early due to impatience. However, the idea may have a lot of growth still to go. Returns are sacrificed because emotions take centre stage rather than sound fundamental practices.

Even a long-term dollar-cost averaging strategy gets interrupted. I think a combination of impatience, other behavioural biases as well and the human mind’s ability to only think linear causes these gaps.

The gap gets closed as a patient investor because you can maximise the returns and not be moved by the volatility of the market and the noise that surrounds it. I do believe a lot of investors do pick good companies, but they lack the patience to hold them.

I’m not suggesting an all-out buy-and-hold strategy, holding a poor-quality company is not a great idea. I am suggesting, however, that if you have put in the work, and have conviction about your ideas, strategy and process, then be patient and let the plan work.

Tips to be a more patient investor…like a Stoic.

Stoicism encourages patience; it is a virtue that Stoic philosophy believes is essential for living a good life. Patience supports your ability to invest for the long term and allows you to handle yourself when things don’t go to plan…and they don’t always. The Stoics believed in patience, to endure difficult or unpleasant circumstances without getting angry or upset. Patience is often putting into practice delayed gratification for a greater reward in the future.

So how can investors cultivate the virtue of patience?

⌛ Think Long-Term: Think in decades not in months. Wealth creation especially from the financial markets takes time, consistency, discipline, and above all patience. You must know your time horizon. Not only the investing horizon over your life but the duration you want to hold each position.

🎯 Conviction: Whether it is in a concentrated or diversified portfolio, a growth/value investing style, or a passive/active approach. Conviction is necessary. If you lack confidence in your strategy or holdings, then it will cause you to be impatient. You can develop conviction by conducting thorough research, using checklists, a thesis on ideas and a written philosophy that guides your strategy.

🧑‍🎓 Educate yourself: This refers to the market, cycles, the economy, and business cycles. Develop a better idea of how the market swings and what to expect from different stages of the business cycle. It can help you not to be rocked by sudden changes in “Mr Market” and investor sentiment which cause you to be impatient.

📢 Ignore the Noise: Tune out the media, and excessive consumption of news and information which adds next to no value to your strategy. By filtering the noise down to credible sources and key information you have a much better chance of being patient with the process. A big contributing factor to impatience is what we allow in, what we hear, see, and then react to.

🗺️ Have a plan: Investors need a roadmap that will take them from where they are now to where they want to be. A defined strategy suited to their investor personality and characteristics that can fulfil their long-term goals. I’ve never seen a successful investor without a plan.

🧠 Psychology: Understand your behaviour, be honest with your emotions and use second-order thinking.

In Summary…

The patient investor has a huge edge over the impatient one. Patience should be your BFF! By cultivating this virtue, the patient investor learns to see the bigger picture. It allows investors to handle volatility, understand what they can and can’t control and accept the temporary mood swings prevalent in the stock market.

It takes years to develop the skills to beat the markets. Years of research, seeing what works, and what doesn’t. Trial and error. Honing those skills. To become the best, you need patience.

Delayed gratification is about resisting the urge to get caught up in the euphoria of the herd. To understand that it takes time for companies to grow, to evolve, to become market leaders. Strategies take time. Investors know great companies are made over time, patiently letting the plan work. Yet when it comes to their wealth creation, they defy the idea of patience.

Define your goals, and what you are aiming at, stick to the plan, and be patient.