What patience means in investing
Patience in investing means giving a well-thought-out decision time: not reacting to every daily price move, and letting compounding do its work. Even a good decision can look bad after six months; the real picture shows over five or ten years.
Patience doesn’t mean sitting back without looking. Keep an eye on things regularly, but act when the reasons change, not just when the price does. If a company’s business has deteriorated or your own goals have changed, changing your decision makes sense.
Think of a mango orchard. Say Mr Karim plants a mango sapling. If he digs up the soil every week to see how far the roots have grown, the sapling may well die. But if he doesn’t check on it at all for years, he won’t notice if pests attack it. Watering it, checking now and then, and waiting a few years for fruit: patience in investing is much the same.
Why it matters to an investor
- Compounding needs time: the effect of earning on your earnings looks small in the first few years and grows later. Getting out repeatedly midway gives up that larger part.
- Every trade has a cost: broker commission, the gap between buying and selling prices, and tax if you make a gain. Trade often and these small costs add up.
- Short-term prices are close to random: where a share goes in a week or a month is often driven by news, rumours and mood. Over longer periods, the business’s earnings matter more.
- Impatience opens the door to many scams: “double your money fast” offers work because people don’t want to wait.
What the research says
Economists Brad Barber and Terrance Odean analysed the trades of 66,465 households at a US brokerage from 1991 to 1996. Those who traded most earned about 11.4% a year on average, while the market returned about 17.9%. The title of their paper said it plainly: “Trading Is Hazardous to Your Wealth”. They pointed to overconfidence as a major cause.
This is old data from another country, so the numbers won’t apply exactly in Bangladesh. But the core lesson is worth remembering: doing more does not mean earning more, and the cost of every extra trade comes out of your returns.
Patience, stubbornness and neglect
Two mistakes easily creep in under the name of patience. One is stubbornness: holding on after the business has clearly deteriorated, thinking “the price will come back one day”, simply because accepting the loss hurts. The other is neglect: not checking at all for years on end.
- Patience: the reasons still hold, so I wait even though the price has fallen.
- Stubbornness: the reasons no longer hold, but I’m holding on because I don’t want to admit a mistake.
- Neglect: I don’t even know whether the reasons still hold.
Some ways to stay patient
- Look at your portfolio less: checking prices daily creates an urge to act daily. Once a month, or on a planned review day, may be enough.
- Write down why you bought: when the price falls later, ask yourself whether the reason has changed, or only the price.
- Invest only long-term money: if cash you need in the next year or two is in shares, staying patient in a fall becomes almost impossible.
Worked example
- Say two friends each invest Tk 1,00,000 in the same kind of shares, and before costs both portfolios grow by 10% a year on average.
- The first hardly trades at all. The second trades often; say commission, price gaps and badly timed trades together eat 5% a year, so his return comes to 5% a year.
- After ten years the first has about Tk 2,59,000 (1,00,000 × 1.10^10). The second has about Tk 1,63,000 (1,00,000 × 1.05^10).
Result: in the same market, the gap is about Tk 96,000, almost the whole starting amount. The numbers are only an example; real costs depend on your broker and how you trade.
Years
See the numbers as a table
| Trades rarely | Trades often | |
|---|---|---|
| 0 | Tk 1 lakh | Tk 1 lakh |
| 1 | Tk 1.1 lakh | Tk 1.1 lakh |
| 2 | Tk 1.2 lakh | Tk 1.1 lakh |
| 3 | Tk 1.3 lakh | Tk 1.2 lakh |
| 4 | Tk 1.5 lakh | Tk 1.2 lakh |
| 5 | Tk 1.6 lakh | Tk 1.3 lakh |
| 6 | Tk 1.8 lakh | Tk 1.3 lakh |
| 7 | Tk 2.0 lakh | Tk 1.4 lakh |
| 8 | Tk 2.1 lakh | Tk 1.5 lakh |
| 9 | Tk 2.4 lakh | Tk 1.6 lakh |
| 10 | Tk 2.6 lakh | Tk 1.6 lakh |
Common mistakes
- Judging a decision good or bad on a few weeks’ or months’ results.
- Trading for no reason because “I have to do something”. Often, doing nothing is the decision.
- Mistaking an inability to accept a loss for patience.
- Putting money you need soon into long-term investments, then being forced to sell at a bad price.
Patience means giving it time while the reasons hold, and acting when the reasons change; not merely when the price does.