Just a few weeks ago saw the passing away of Christopher Browne, a founding partner of one of the original value investing houses, Tweedy Browne. Whilst it would be more than fitting to dedicate some lines to this remarkable investor, I feel there are numerous other sources where the interested reader can obtain a thorough account of his achievements.
My reference to Mr Browne, and more precisely to his eponymous firm serves as an introduction to this post’s key point, which is the pivotal role that the concept of patience plays in the investing field. Not so long ago I was quite amused by a quote allegedly uttered by an investing professional as he visited the offices of Tweedy Browne during the interviewing process:
“At most other firms you can tell whether the market is up or down by the noise and atmosphere of the place; at Tweedy you can’t even tell if the markets are open!”
For anyone that has ever had the chance to visit an asset management firm or a trading floor of an investment house, the above affirmation is nothing short of shocking. In fact one only has to tune in to financial news networks such as Bloomberg Television or the hyper-active CNBC, to realise that the prevailing theme is long on action and short on reflection.
Notwithstanding the fact that this rapid-trading, news-a-minute approach can be quite entertaining and at times even thrilling, (remember the classic scene in Oliver Stone’s film, Wall Street, as the hapless Gordon Gecko watches the ticker price of his targeted airline stock rise by the second…), it is a powerful deterrent to successful investment results.
All types of statistical analysis performed by notable investors with enviable track records point in the same direction. Peter Lynch , the legendary and highly successful manager of the Magellan Fund which he ran between 1977 and 1990 returning 29% annually for his investors , once remarked that he calculated that over the same period more than half of the investors in his fun lost money. The reason for this pathetic performance was simply investors chasing performance by pouring into the fund after good quarters and heading for the exits after poor ones.
If these same investors could have refrained from trading in and out of the fund in the related period they would have come up some thousands of dollars richer with no effort and a whole less commissions, fees and tax-related expenses to boot.
All in all, it seems that the lure of the stock market clouds our judgement as investors. Paying undue (or indeed any) attention to the “noise” emanating from short-term pundits ends up handicapping our investment returns. Just as we would not put our house for sale in the market because of a recent newspaper article mentioned a softening of real estate prices in our neighbourhood, we should not let go of our equity holdings when spot prices head south.
As always, it pays to do your own thorough analysis and remain patient whilst price approaches true value rather than letting “Mr Market” decide for you.
“…man's unhappiness springs from one thing alone, his incapacity to stay quietly in one room.”
Blaise Pascal
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