I hate waiting.
I don't like waiting in line to check out of a store. I don't like waiting on the phone for a customer-service representative to help me with a problem. And I really can't stand waiting for my order in a restaurant.
But I'll wait as long as it takes to find a good opportunity in the stock market.
Why is that one different? Because I know I need every advantage I can get to generate excess returns in competitive markets.
Here's how I think being patient gives little guys like us an advantage.
Animals and humans aren't wired for patience. In "The Economics of Impatience," Ernst Fehr talks about how animals prefer "small rewards arriving soon" rather than "large awards arriving later." That's because we know that future rewards may not come. As such, we discount them more heavily, and thus they become less valuable to us. Yet in the stock market, those who can be patient can take advantage of those that can't. Sorry, but it's a cruel world out there.
Consider Research In Motion
Conversely, American Eagle Outfitters
Some mistakes are OK
We all make mistakes. Being patient changes how those mistakes might affect our portfolios. That's because when we exercise patience, we substitute errors of omission for errors of commission. Put more simply: It's better to miss an opportunity than to make a bad choice.
Last week, Pharmion
Exploit our position
Here's another way to exploit an advantage. As individual investors, we don't have to worry about raising capital or watching it flee, because we don't get paid based on assets under management. We get paid based on the returns we generate. As a result, we can be patient and pick our spots, whereas professional managers have to invest funds right away and earn returns on them for fear of losing them.
Three important words
Patience also reinforces discipline. I hate losing money more than I hate waiting. So I am more than willing to wait for investments with healthy margins of safety -- three important words for any investor to remember.
The Foolish bottom line
Patience can be a powerful advantage in the stock market. It can help us be different from the crowd and exploit others' tendency for immediate gratification. It can keep us focused on the goal of long-term results as well as help us harness the power of margin of safety.
It can also help us in difficult markets like these. We don't need to rush and buy on every dip. Instead, we can wait for the prices we want, or even demand, in order to generate big returns. After all, the market is not there to guide us; it's there for us to exploit. It can also help us hold onto investments through tough times as long as the investing thesis remains intact. Just as we don't need to buy just because others are buying, we don't need to sell because others are selling.
Patience is indeed powerful. So, Fools, use your patience to your advantage and harness the spoils it will bring.
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