What is the secret to investing? Anyone who has ever purchased shares of a stock (especially a bad one) has likely pondered this question in one manner or another. There are so many attributes that contribute to successful investing. Knowledge is important. Understanding businesses, financial statements, and economics is crucial. But even the most studied investor won't reach the top echelons on these alone. There is a psychological component that is far more important: patience.
The toughest thing to master
If you need a prime example, look to Warren Buffett. Buffett takes an incredibly long-term time horizon for his investments. Even now at nearly 90 years old, he looks at things from a perspective that will easily carry his plays beyond his lifetime. How many can claim to have that kind of disciplined resolve?
Now of course you can make money without taking 50 years to do it, but the character trait of patience is still essential. Say, for example, you decide that Ford Motor (NYSE:F) is undervalued. You believe the car maker will rally its sales through the next decade, and earnings will follow. (This is completely hypothetical. I'm not saying buy Ford.) A successful investor must have the wherewithal to see their plan through.
One could go long Ford at $6.45 and have their shares fall by 15% at some point along their time horizon. A lot of people panic at that moment. It's easy to doubt one's thesis and bail out with a loss. But unless something fundamentally changes that alters the potential long-term outcome of the investment, there shouldn't be any reason to jump ship.
Waiting to buy
Patience is key in finding the right deals. There could be a company that is doing incredibly well, but the shares have been on a big run and have become inflated. It can be incredibly tempting to chase that play, but a patient investor knows that the gains have already been had.
Finding a price that makes sense, and waiting for that price, can be incredibly hard. I took a position in DraftKings this year, and I jumped in above where I wanted to. Sports betting stocks were hot this year as investors looked to find a new area to invest in. Sure enough, there have been pullbacks in which I could have gotten the price I wanted. That lack of patience is what diminishes one's potential returns.
Not needing to be invested
In time spans with unappealing options, it can become incredibly difficult to just sit on cash. After all, we have all been preached to about the detriment of inflation, and the diminishing purchasing power that one may suffer if they don't have their cash invested for growth. Ironically, some of Berkshire Hathaway's biggest deals have been achieved by sitting on massive amounts of cash and striking when opportunities arose. The patience to not "need" to be invested is one of Warren Buffett's most effective traits.
These are all instances where patience is so important. You can find the right names. You can see the economic events. Being hasty, or lacking that crucial self control that patience gives you, will hinder your ability to make the most of investment opportunities.