Given the world we live in and the tendency toward instant gratification (I'm looking at you AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) traders), it can be difficult to watch a stock you've purchased languish and fail to make progress day after day or week after week. Yet exercising patience and letting time in the market work for you is one of the key advantages individual investors have. Famed investor Warren Buffett has even addressed this by saying, "The trick is, when there is nothing to do, do nothing."
On this clip from Motley Fool Live, recorded on Jan 29, "The Wrap" host Jason Hall and Fool.com contributor Brian Withers discuss the importance of patience for long-term investors.
Brian Withers: I have a BFOF Chi-Town investor is asking about nCino (NASDAQ:NCNO) and says, "Hope you're right on nCino, I've only owned for a few months, but it's been underperforming thus far."
A lot of times as we see new investors come in to The Motley Fool and you buy something, and you take your hard-earned money, it's so hard to set aside first, and then the second thing is you're putting faith in an investment recommendation from The Motley Fool, $500, $1,000, $250, I don't know how much it is, but it's a lot of money to you.
Then it just sits there and does nothing or it goes down 10%, and it's just like, "What's the deal? It's been two months. What's going on?"
You have to understand, and I guess the best way to explain it for me is, when you work for a company and you just think about how slow things move over time.
In the July, August, September timeframe people talk about we're going to set up our goals and projections for the next year, and we're going to plan out the projects that we're going to do, and we're going to try and capture this new segment of customers, and then that plan gets approved. Then January 1st, maybe you get some reps to hire some new sales people that know that industry to help dive in and get attraction to that industry, or maybe a partner with a distribution partner, and it takes a couple of months for that distribution partner to come on board, and now it's April and May, and you finally hire the salespeople, but one of them quit and the other one's having trouble getting trained because of COVID, whatever.
It takes a long time for things to happen, and there's so many things in the day-to-day market that change the stock price every day. It feels like things should be moving up over time, but the long-term results of the business are coming from winning new customers, getting more customers, driving more earnings to the bottom line, and that's going to happen over the years.
So being patient, and I know it's super hard, this is probably one of the hardest things that we have to do, is you buy and you just sit and wait. You sit down on your hands.
I appreciate you coming out and posting the question. Two months is not a long time to own a stock. I've owned MercadoLibre (NASDAQ:MELI), it's one of the longest ones in my portfolio, I bought in 2012. I'm planning on holding it for the next decade too.
Jason Hall: It makes it doubly hard when you see this news about GameStop, and AMC, and these other stocks that have added 1,000% in days. It doesn't make it any easier.
A couple of things, Brian, I just want to add to your point. Number one, you shared yesterday in [our] Smarter, Happier, Richer [segment]. Maybe it's yesterday or the day before, Brian Feroldi, our fellow Fool's chart that shows the catalysts that can affect stock prices. The key point, the key takeaway, the two takeaways is the things that happened in the short-term, the different catalysts, are entirely unknowable. You don't know, you can't know what they're going to be.
But the thing that will drive it in the long term is earnings growth. That is what will drive it in the long term. If you know when your financial goals are, which you should, if you don't figure it out know when they are, and you know which companies have great records of growing and have great potential to continue growing their earnings, you can focus on those knowable, predictables, and not gets caught up in the unknowables, the Ben Graham voting machine in the short-term, weighing machine in the long term. Stock price movements day-to-day is what people think is going to happen. That's not what the companies are actually doing.