My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Thursday, June 23, 2011

Patience and Conviction in Investing

The expression “patience is a virtue”, has no truer application than investing. Patience typically necessitates conviction, which can be fleeting in the investment world. Most everyone who has ever invested in the stock market has regretted selling a stock too early because their conviction wavered. As Warren Buffett has stated “The stock market is designed to transfer money from the active to the patient.”

It has taken me several years to understand that part of the key to conviction, and staying focused on your long-term investing goals is realizing that your conviction, in many cases, will be tested. The market often does not reward your conviction with even the slightest acknowledgement by way of a small stock price increase. The stock market is cold hearted and does not care about your conviction or timelines, and may mock you and continually test your conviction by trying to convince you that have made the wrong decision.

That is, you may buy a stock at $12 and it trades for three to four years (or longer) between $10 and $12, and your conviction waivers. Then, suddenly, that stock finds market acceptance - be it through a significant transaction for the company, an analyst starting coverage, or just that sector becoming the flavour of the year with no underlying change to the company. Waiting out the stock market to have your convictions confirmed is often the hardest aspect of investing, as timing and conviction don’t often seem to converge.

An interesting sidebar to investment conviction, at least in my case, is that it has revealed a personality flaw. For someone who is typically not jealous or envious of others and open to discuss stocks I own, I have noted I have some resentment towards people when I know they have purchased a stock and received the same absolute dollar gain in two months that took me five years to achieve. It is not the monetary gain that causes this resentment, but the fact they did not have to suffer in the trenches with the same doubts and stress and persevere like I did - especially where the stock has been volatile, or had downward pressure. I know this is very small of me and I should just be satisfied my conviction proved correct, but I know others that feel the same way. I wonder if any of my readers have the same feelings, or is the fact your conviction proved correct satisfaction enough?

I return to Mr. Buffett to conclude, “With each investment you make you should have the courage and conviction to place at least 10% of your net worth in that stock.”

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

3 comments:

  1. Agreed. When it comes to investing, patience and persistence are often rewarded when we least expect it. The biggest mistake you can make when it comes to investing - is NOT to invest.

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  2. Celesta- well said. I have trimmed shareholdings a couple times over the years as my patience "wore" thin only to be rewarded out of no where after trimming my shareholdings, but the reward was not what it should/could have been.

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  3. We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.
    -W.B.

    Our favorite holding period is forever.
    -W.B

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