Patience can help you outperform professional investors.
It pains me to say it, but us private investors are the small fry of the investment world. We are the sprats and sticklebacks of the global equity waterways.
Life isn't always easy, at the bottom of the food chain. Sometimes it seems that just about everybody is against us.
With our limited resources, we try to compete with the shoals of highly-paid equity analysts, stock pickers and investment bankers who roam international markets like hungry sharks. We're up against those automated electronic algorithmic systems that can trade thousands of stocks in milliseconds.
They are the ocean predators. We are krill.
The cruel sea
And that's not all we have to battle against. We are in constant danger of getting swept away by a macroeconomic tidal wave of sovereign debt defaults, currency shifts, trade wars and black swan events. Not to mention central banker lunacy or investment banker greed.
Even if we avoid those major hazards, we might drown in a microeconomic whirlpool of director fallibility, untimely profit warnings, leaky pipelines and lost opportunities.
As if that wasn't enough, we have to fight against our own flawed psychology, that tells us to swim after the same stocks that all the other little fishies are chasing, even if their returns are in danger of depletion.
But we do have one thing on our side. One under-appreciated weapon that is denied to many of our competitors, or actively derided by them, but is enough to arm us against a sea of troubles.
Time.
Time is on our side. So don't waste it.
Give it time
Time cures all ills, they say. That's not strictly true, of course. Time can do nothing for your holdings in Northern Rock or Bradford & Bingley, which are gone for good.
But it should eventually cure BP (LSE: BP), for example. The oil giant's share price looked dead in the deep water earlier this year, but it is slowly swimming back to life and light.
One day, time might even heal our flailing banking stocks.
Time is also the best-known cure for market corrections. Just look what it has done to the FTSE 100, which sank from a high of 6,700 before the credit crunch to around 3,500 in March 2009. At time of writing has recovered to 6,034 points -- a rise of more than 70%.
It has taken two years to get there, but this was time well spent. I hope you didn't spend it sitting on the sidelines.
In for the krill
So why is time on our side, and not the big fish?
Fund managers, stock pickers and investment bankers work to deadlines. They have targets to meet, annual reports to file. If they suffer one or two bad years then their reputation slides, as does their quartile ranking.
With a handful of exceptions, such as Neil Woodford at Invesco Perpetual, most fund managers daren't risk a year or two of underperformance, waiting for their positions to work out. They might lose their jobs (unless they work for a sucky bank fund).
You and I can afford to be patient, because we don't have shareholders, senior managers or competitors breathing down our necks.
Patience is our only virtue
My biggest investment (and non-investment) mistakes have come from impatience. I sold ARM Holdings (LSE: ARM) 18 months ago because the share price hadn't shifted for three months. It is now up 150%, and taunts me by rising another 10% every day.
I should have given that one time.
I sold RWS Holdings (LSE: RWS) a year or so ago after its share price dwindled to 285p, but it now trades at 366p. True, there was plenty of volatility in between, but time has sorted that out.
And when I look at my top performers, like City of London Investment Group (LSE: CLIG), they all have one thing in common. I gave them time. It was impossible to know when (or if) they would start rising, but by sticking around, I made sure I was there when they did.
Learning to be patient has proved my most profitable investment lesson by far.
Bottom fishing
By being patient, we can invest in out-of-favour stocks or sectors, and wait for them to come back into fashion. We can let the dividends roll up, while waiting for the share price to recover its full value.
We can profit from disastrous company boss ego trips, such as Prudential's (LSE: PRU) chief executive Tidjane Thiam's ill-fated Asian misadventure, by picking up extra shares on the cheap cheap while short-termist investors flee for the exits.
Given time, private investors can compete with stock market professionals and their infernal machines. We may be small fry, but over time, we can prove that we're not pond life.
More from Harvey Jones:
> Harvey Jones owns shares in BP, City of London Investment Group and Prudential.
