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Investment Patience is a Virtue

By: Chris Kelly, CPA, CFP®, M. Accy | Financial Advisor and Portfolio Manager

Patience is defined as “the capacity to accept or tolerate delay, trouble, or suffering without getting angry or upset.” eighteenth century philosopher, Jean-Jacques Rousseau once said, “patience is bitter, but its fruit is sweet.”

As is true in many areas in life, investing requires a tremendous amount of patience. Individuals often become increasingly uncomfortable during times of volatility, and inevitably shift their focus from long-term goals to short-term anxiety. A major contributor to this phenomenon is what is referred to as “recency bias.” Recency bias is the tendency to believe that trends and patterns of the recent past will continue in the future. (For more information) The financial crisis of 2008 epitomized this thought process for many investors. Some of the most educated, long-term investors became increasingly more skeptical as the early days of the 2008 crisis turned into weeks, and the weeks turned into months. These same investors became so susceptible to the fear caused by the market’s downward spiral that they lost the patience and discipline needed to stay the course.

Benjamin Graham, the father of value investing, once said, “The investor’s chief problem — even his worst enemy — is likely to be himself.” As financial advisors, we play many key roles in the lives of our clients, but one of the most important is helping our clients stay focused on the long-term game plan. All of the work we do in terms of research, allocation, diversification, risk management, cash management, etc., is meaningless if investors lose sight of their long-term investment goals.

As an exercise, think back to a time in your life when you were excited to begin a new challenge. You knew this challenge would not be easy, and that it would probably require a significant amount of sacrifice in the short term. Ultimately, however, it would benefit your life over the long term. Maybe your challenge was to start a fitness program, initiate healthier eating habits, or become a better parent. Whatever the challenge, there were probably a few bumps along the way. These sorts of life challenges can be comparable to the challenge of investing for your future. Success is dependent upon a certain level of patience. A tremendous amount of discipline and fortitude may be required along the way, but most of all, success requires patience. Patience is the vehicle that allows discipline and dedication to turn into progress.

Mark Twain said, “I’ve suffered a great many catastrophes in my life. Most of them never happened.” Many investors have a natural tendency to focus so much of their attention on the negative news of the day that it dominates their thoughts. Their short-term focus on negative market reports leads to anxiety, which can then lead to making irrational investment decisions. Heightened investment caution is certainly justified in many situations. We do not advise clients to bury their heads in the sand and ignore their investments.

However to extrapolate the most recent economic events into a future theory can be a mistake. Appropriate risk management requires perspective and balance — especially during times of volatility. patience is the vehicle that allows discipline and dedication to turn into progress.

At BWFA we are committed to continuing our disciplined, long-term investment process for each of our clients. We understand that a long-term perspective can easily lose its appeal and put investor patience to the test when times get tough. During times of market turmoil, it often seems justified to take some type of immediate, decisive action — just because. But actions based on haste and prognostication often backfire, leaving investors with bitter regret for their swift, but emotional, responses. We may not be able to entirely control our emotions during tough times, but we should try to consistently heed the wisdom our mothers imparted as we were growing up: Patience is a virtue. Remember… your mother is always right!

Feel free to contact a BWFA professional or make an appointment to stop by our office if you would like to discuss your specific investment strategy and objectives