The market: “A device for transferring money from the impatient to the patient”

What’s the single most valuable attribute for a successful investor to have? In my experience, it’s probably patience.

What’s the single most valuable attribute for a successful investor to have?

A willingness to take risk? To read widely? Or a massive intellect that can burn instantly burn through complex finance equations?

Actually, in my experience, the most important predictor of an investor’s long-term success is probably patience.

Patience is a rare commodity these days. According to data from The New York Stock exchange, the average length of time that investors stick with a position has collapsed since in 1960.

In 1960 it was eight years. By 1970 it had dropped to five years. By 1980 it had dropped to just under three years. By 1990 it was down to 26 months, by 2000 to just 14 months, and in 2010 just six months.

Today, the average holding period for stocks is about 17 weeks. 17 weeks!

So investors are willing to hold onto a stock for a little more than a quarter before they cut it loose. That’s a remarkable stat.

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Give yourself a chance

A lack of patience stacks the odds against you. It’s hard enough to beat a gazillion other investors and find big opportunities in stocks.

That’s utterly insane.

I like how Warren Buffett puts it: “the stock market is a device for transferring money from the impatient to the patient.”

And the most interesting thing about patience is that it’s practically free — you only bear opportunity cost as a patient investor.

Free is pretty rare in the financial markets. Want access to the fastest data and most powerful research tools? S&P or Bloomberg will charge you about £20,000 a year for the privilege. Want to trade with super-fast Wall Street firms like Goldman Sachs? All you need is the £10 million minimum to open an account.

As important as patience is for ordinary investors, it’s doubly important for us penny share investors. As I wrote back in September,

Penny shares are weird. They don’t behave like shares in ordinary companies. They’re weird in a couple of different ways: for one, the data shows that they return more than big companies. Another weird thing is that their returns follow a power law distribution.

What’s a power law distribution? Well it means that a very small number of the penny shares in your portfolio will make you most of your profits.

Your success or failure as a penny share investor depends on your ability to find a small number of really excellent companies. The big winners are the ones that make your investment career.

It’s a good strategy. But a lot of investors find it hard to stick to it, because waiting for the big winners to do their stuff requires patience.

We’d need to be pretty delusional to believe that the stock I picked in this month’s Penny Share Letter is going to start moving up as soon as we click “buy”.

As with any good investment, shares could realistically move lower before they move higher again. That’s part of being a small-cap investor.

Right now, my Penny Share Letter portfolio is made up of new positions that haven’t really had much time to play out. Of the six shares I’ve tipped so far, one is up by roughly a quarter, two are up a bit, two are flat and one is up by about two thirds.

It’s early days yet. Of course, we can be happy with progress so far. But it takes time for our investment thesis to play out in our stocks, and we may be in store for some hiccups and speed bumps along the way.

Look, we’ll always get some wrong, and there will always be losses — that much I can guarantee. My job is to make sure that in the long term, the winners are bigger and more frequent than the losers.

With some patience (and a little bit of luck), we can make sure that we see some huge gains in the future. I’ll continue pounding the pavement to find the next big opportunity in a tiny stock.

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