As seen in The Globe & Mail on December 7, 2022
The Globe & Mail: How advisors can help investors ‘cultivate’ the superpower of patience (for subscribers only)

Short-termism is the enemy of building wealth. History shows that patient investors are more likely to outperform over the long term. Unfortunately, there’s a supply chain issue regarding patience. Whether it’s the average tenure of chief executives or the average holding period of stocks, both have been steadily falling. Technological advancements may be one of the culprits of our global impatience epidemic. As Herbert Simon, the American Nobel Prize-winning political scientist observed: An information-rich society may be attention-poor.

Patience often gets short shrift. That is too bad because I think it is an investor’s superpower.

It’s no coincidence that some of the world’s most successful investors are proponents of the patient approach to building wealth. Legends such as Warren Buffett, Howard Marks, and Phillip Fisher have all spoken about its merits.

Buffett has stated his favourite holding period is “forever”.

Marks acknowledges that not every period offers great opportunities for investors. “Sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism—waiting for bargains—is often your best strategy.”

Fisher endorses the need for patience “if big profits are to be made”, and added, “it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.” 

Life experience confirms that being able to delay immediate gratification and overcome both internal and external obstacles in pursuit of long-term goals is a worthy endeavor. Having the talent and drive to succeed are great, but without patience they are often not enough to get us to the finish line.

Some people conflate patience with passivity. But they are not the same. Patience is active. It entails being sharply focused on a goal and being opportunistic about how and when to act on it. Capital markets provide an excellent testing ground for developing patience. As the chart below shows, markets rise over the long term, despite periods of drawdowns. This makes a good case for the benefits of staying invested. Nevertheless, looking at a graph illustrating historical drawdowns and emotionally experiencing those market loop-de-loops in real time, in real dollars, as most investors have this year, are very different rides—with the latter being far more emotionally taxing.

This is one area where financial advisors have a key role to play in supporting their clients to build their “patience muscle”. Part of the assist is of a tactical nature and may include adding an allocation to non-correlated assets or employing alternative strategies to smooth out portfolio volatility and generate positive returns throughout the economic cycle.

In addition, it is important to remind clients of the ancillary costs of panic selling which include capital leakage in the form of commissions, trading costs, and taxes, not to mention the potential of permanently locking in losses. No one can successfully and consistently time the markets. It’s far better to construct a resilient portfolio that can withstand various market conditions while, at the same time, being in alignment with the client’s risk tolerance.

Advisors could also highlight other advantages of staying the course. These include benefiting from the power of compounding wealth through capital appreciation and dividend growth, and the opportunity to purchase assets at better valuations. Independent of the market’s mood, it is always worthwhile to educate clients and build trust.

Often overlooked amid discussions of investment strategies is investor education. Being clear and honest in communicating with clients is paramount. Does your client believe you “walk on water”? While flattering, it’s important to remind them that no one can consistently understand and predict the direction of markets. Investor psychology and the market’s mood may be sensed but never guaranteed; these emotional factors often drive markets (at least in the short-term) far more than fundamentals.

Like anything else, patience can be cultivated. Readers who have studied martial arts may be familiar with the term “wuji” or “wui chi” (pronounced woo jee) which translates as “without limits”. Wuji is a form of standing meditation. It is often the first and the last step in a series of movements. Wuji is deceptive. To an outsider, the person is simply standing still but it is the opposite of passivity. There is lot is happening in mind and body, and anyone who has practiced wuji can attest, it’s much harder than it looks! In investing terms, one could compare wuji to creating optionality in a portfolio: from here you can go anywhere.

Here’s a final thought on patience from an ancient African proverb: Patience is a tree whose roots are bitter, but its fruit is sweet. This year, many investors have been left with a bitter taste but, if history is any guide, there may be sweeter times ahead.