Good things come to those who wait

Regular readers may have noticed the slow-down in my blogging frequency as of late.

Partially, and not surprisingly, it comes down to lack of time. There is however a more subtle yet equally valid reason also at play. Consciously or not, I have been applying a more patient approach to investing matters. This translates into equal amounts of reading, (this part of the equation will not be reduced), but significantly less actual decision making, whether it concerns specific investment action or writings.

In the spirit of one of my very first posts some 2 years ago (see “It’s often better to just sit still”), the last 3 months been a period of much reflection but little action.

The turning point for me came very suddenly and in crystal clear fashion when I mentioned to my wife a very recent (less than 4 weeks old) stock purchase. For you see, the first question that came to her mind was not an enquiry about the company itself or its economic health or financial performance at all. Oh no. She wanted to know how the stock had performed since I acquired it. Once again, note that I had bought it less than a month before…

Not only did I not have an immediate answer, (I do check spot prices but not on an hourly basis), but more importantly I honestly didn’t really care. The security in question had been bought on the basis of its very favorable (read: cheap) valuation on an absolute and on a relative basis, and returns would be obtained by closing this apparent price-to-value gap. Not a feat I expected the market to accomplish in 4weeks!.

As I went on to explain to her the relevance of balance sheet strength, competitive advantage, brand power and a positive cash-flow trend, an interesting thing happened. She acknowledged the importance of these factors but remained inquisitive about the current stock price. This, as it happens, is the way that most of us operate, guided more by the daily gyrations of a volatile marketplace and than by the underlying factors that truly matter in the long run.

Looking back, I see no reason to change my approach, other than the intrinsic difficulty in its daily application. As anyone with an internet connection and access to TV will attest, it is nigh on impossible to shield oneself from the onslaught of economic “news” and financial “information”. These days, as events unfold regarding the Greek debt crisis and the US debt-ceiling debate, all manner of folks seem to be conversing about such, until recently at least, arcane issues. Passivity right now is awfully hard.

Patience, temperament, and a cool head, do not come naturally. Not for most and certainly not for me. There are however, some methods that serve to minimize our natural “instant-gratification seeking” tendency and provide us with good odds of decent returns:

1. Approach investing as you would saving for your kid’s college fund. Set-up a specific separate account and write up a “contract” for yourself detailing under what exceptional circumstances you would withdraw money for this account. Come back and check the balance 10 years from now

2. Set-up news alarms for your chosen stocks (or companies’ in your funds) related to quarterly earnings reports, and major management changes.

3. Track annual financial performance via public filings (10 Q, 10 K) and make a conscious effort to infer stock price from accounting statements and not vice-versa

4. Review long-term (minimum 10-year) individual securities or index / fund performance. Note that even after the horrific crash of 2008, many good companies and funds have already reached new highs. Underperformance for good stocks does not last forever.

5. Think of your financial investments in the same manner as your education. Even though the return on academic training is initially negative and often slow in coming, the passage of time inexorably delivers considerable value

There’s little to be gained from rapid-fire speculation, except heavy broker’s fees, and higher taxes. And with the long-term odds in your favor, I’d rather be a tortoise than a hare…