We live in an impatient world.
Photo: Mariordo. Source: Wikipedia
After running our phones down to 1%, we plug them in and expect them to be fully charged in a few minutes. We get frustrated when a webpage takes longer than three seconds to load. We would rather use the microwave than wait for the oven to pre-heat. And if youre going too slow in the left lane well were probably not friends any more.
Our culture lionizes speed: the instant celebrity, fast cars and faster planes, microsecond response times. We prefer fast food to sit-down meals, and ready-to-eat entrees to grocery shopping. We continually feel the pressure to get more done in less time. Learning to be more patient is the last thing on our minds.
But patience plays a critical role for investors. When youre patient, you play a different game than the Street analysts who focus on time horizons measured in months, not years. When youre patient, you give a business time for its fundamentals to assert themselves. Operating earnings, dividends, and a strong balance dont spring up overnight, but theyre far superior than financial engineering. And patience gives you the gift of compounding the magic that can turn a $500-per-month 401(k) contribution into a million-dollar nest egg, if its left to grow in the market at 8%.
The value of patient compounding
Theres a cycle to investing, and to life, that embodies evanescence, or the transitory nature of all things. Those that are full become empty, and the empty become full. The Japanese called this muj, Buddists call it impermanence, and in Latin the phrase is Sic transit gloria mundi thus passes the glory of the world. The grass withers and the flower fades. If you chase the latest hot investment trend, youre like the cat that chases its prey up a tree, onto smaller and smaller branches. Eventually, the branches cant bear the weight, and the cat comes tumbling down.
Patience isnt just about waiting. Its about keeping a good attitude while youre waiting. Just remember: slow food is more nourishing than fast food. And sustainable, profitable firms make better investments than femto-second coin-flips.
Douglas R. Tengdin, CFA