Thursday, 31 October 2013

The value of patience

Price-value gap

Theoretically, with higher trading volumes, the price-value gap should narrow due to better price discovery.   Yet, in reality, this is not the case.

The increase in trading activity actually widen the price-value gap; often increasing the noise in the system and leading to spikes in volatility that we see often in the stock market.

An explanation, which is not surprising, is the majority of market participants are speculators and not investors.  

Rather than narrowing the price-value gap through better price discovery, the exact opposite is the result.

What can you do as an investor?

In this world, an investor who is hostage to short-term performance pressures will feel nothing but discontent.

The only requirement for successful play is the willingness to adopt a different set of rules.  

Of these, none is more important than the value of patience.

Let's learn from Buffett:  Having a patient attitude to investing

Time and patience, two sides of the same coin - that is the essence of Buffett.

His success lies in the patient attitude he quietly maintains toward both Berkshire's wholly owned business es and the common stocks held in the portfolio.

In this high-paced world of constant activity, Buffett purposefully operates at a slower speed.

Learning points

A detached observer might think this sloth-like attitude means forgoing easy profits, but those who have come to appreciate the process are accumulating mountains of wealth.  

The speculator has no patience.

The investors lives for it.

The best thing about time is its length.

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