In stock market investment, patience is necessary. If you don’t demonstrate patience, you will either miss out on opportunities to buy securities at the right price, or you will sell prematurely and lose money in the market. Whether you are new to stock market investing or have been doing it for years, taking your time and making smart, well-thought out decisions will help you achieve greater success. Accordingly, here are three things you should focus on to cultivate patience when investing:
1. Knowing when to buy
Determining when is the best time to purchase new securities should involve lots of research and careful consideration. You will have likely studied past performance, fundamentals and identified the ideal entry point. If, however, as you wait for the price to come down, it suddenly starts edging upwards, you should not panic and place an order in haste. By doing this, you not only give up potential profit, but you also nullify all the research and planning you have done up till that point. The point is that once you set a purchase price, you should stick to it. The whole reason you do research is to avoid guess work and impulse decisions. Emotional stock market investing will eventually lead to disappointing returns. Investopedia explained that investors who violate their discipline can end up in ruin. As such, that’s why sticking with a predetermined investment strategy will help mitigate the losses that result from emotional investing, lack of patience and failing to look ahead. Exhibiting patience is not always as easy it sounds, but the best investors and traders are able to trust their own discipline. By using sound methodologies and allowing your research to serve your strategy, you avoid buying prematurely. Remind yourself that patience is the most important investment discipline.
2. Knowing when to sell
Zentrader pointed out that private equity is consistently one of the highest performing asset classes because investors buy and sell when prices are optimal. They purchase companies and securities at a bargain and then hold them for a full business cycle. When the investment has appreciated enough, the investors sell them. Selling when conditions have improved substantially is how to make a huge gain. What retail investors should learn from this example is that, having bought a security at the right price, the next thing to do is wait. If you have done your research, then you have determined the best time or conditions to sell. You should hold steadfast in that decision. According to Investopedia, there are times when you can stick to your strategy diligently and the price of the security does not move. This is when patience will serve you the most. You can go back and re-examine your strategy and look for something you may have missed, but don’t sell impulsively. If the outlook for the security has changed, then you can set a new price at which to sell. Alternatively, you may find that your analysis is on track and that the security will eventually get to where you want it to be. In that case, continue to hold your position. Many institutional investors lose money in the market because they don’t know how to be patient. They will make sudden decisions that limit their ability to make a real profit. Knowing when to sell is essential.
3. Knowing yourself
The most important thing when cultivating patience is knowing yourself. If you are aware of your tendency to be impulsive and can react emotionally to volatility in your investment portfolio, then you can implement certain safeguards to ensure that your temperament doesn’t get the best of you. Zentrader mentioned that most studies done on the behavior and results of individual investors reveal that they routinely underperform the stock market over time. The main reason for this is that retail investors are too focused on the short term and don’t put enough time into forming strategies and waiting for them to materialize. It is also important to highlight that most of us aren’t experienced day traders. Making money with short term positions isn’t easy. The only people who really make money from frenzied buying and selling activity are brokers. However, long term strategies allow investors to capitalize on the simple fact that markets appreciate over time. Institutional investors who spend their days studying and predicting market fluctuations may be able to play the arbitrage game, but for the retail investor who wants to invest in the market as a hobby or as part of a retirement plan, the best way to make money is be patient.
Ultimately, like in any field, study or discipline, hard work pays off. Many investors operate under the assumption that making money through stock market investing is easy, but the truth is that it requires research, analysis and patience. Zentrader also pointed out that while it seems obvious, the best way to invest is to buy low, hold on to securities for a long time and sell high. This is what investment gurus like Warren Buffet advise individual investors to do.