Don’t interrupt the compounding process.
As fundamental investors, we seek to obtain more value than we are paying for. To do this, it is helpful to be patient and maintain a long-term viewpoint. Patience is a scare attribute in modern day investing and hence, it is one of the most valuable differentiators. There are two key investing benefits from patience:
1. Patience to wait for the “fat pitch”- Most investment ideas are mediocre, or worse. The reality is that the most compelling opportunities that also fall within your circle of competence don’t come along that often. But when they do, you should be prepared to act with conviction. In the meantime, it’s important to stay patient and disciplined until such attractive opportunities emerge.
2. Patience to hold on to your winners – The first rule of compounding is to never interrupt it unnecessarily. It is important stay invested in “compounders” as long as the underlying business value grows at a satisfactory pace and valuation levels do not climb to extreme levels.
Simply put, the odds of finding the proverbial needle in the haystack are higher when fewer investors are looking in the same [hay]stack…Some of the ways we [search for that needle] include a) conducting “scuttlebutt” research, especially among smaller stocks; b) seeking out firms with predictive attributes; and c) being more patient than the average market participant.
…we believe patience is [a] key component of behavioural edge. Don’t necessarily jump at the first stock price dip…It is important to keep in mind that “problems” can persist for many quarters or even years. After all, the only difference between salad and garbage is timing.
We’re marking the holidays with the 12 Days of Investing the Pender Way. Short posts in which we share some of the key tenets of our investment process.