VALUE INVESTING
Patience

By Stephen Bland (TMFPyad)
July 2, 2004

Patience may be a solo card game but in the sense of being willing to wait, is it a virtue? As far as value investing is concerned, much more than mere virtue, it is critically important that investors possess or develop patience towards their shares.

Perhaps paradoxically, in the real world outside of shares, I personally don't have too much patience. Whenever I'm in a supermarket checkout queue for example, there is always something holding it up. Someone is trying to pay with a duff credit card or there's some old lady who can't find her purse. They might even be someone querying their bill because the barcode on their cod 'n' chocolate flavour crisps doesn't register the fact that the item was on a special deal of two for the price of one.

It only happens to me. Nobody else seems to suffer from this affliction.

In the whole universe, everyone else contrives somehow to find the queues which don't have delays. How do they do it? I seem to possess an almost supernatural supermarket sense for lengthy line location. If you ever see me queuing up for something, join another queue quick.

The other day I was watching the England-Portugal game when a friend rang and suggested I come over to her place at half time and watch the rest there. She's near enough that I should easily be able to make it. My car was running on prayers though, so that I had to fill up on the way. I figured there would be few people in the filling station because of the match and sure enough it was almost deserted. So I gas up, ensuring as usual that when I've finished the digits of the money dials on the pump add up to nine, and go to pay. Relief, there's only one guy in front of me. And yes the damn till breaks down and he can't pay. So they have to call the manager and some time later I'm on my way, eventually missing a few minutes of the second half of the game.

Now this happened only because I was there. Of all the tills in all the petrol stations in all the world this one had to go wrong just at that moment when I'm particularly desperate to get somewhere. If I hadn't been there that till would not have gone wrong.

None of this would matter if I could just smile serenely and see it all philosophically. But I can't. I fume, I boil, I rage inwardly, I mutter obscenities probably loudly enough to be heard by others in the queue. Patience is not something that comes naturally to me.

So I had to learn it with value shares. Much earlier in my value career, I noticed that I would sometimes sell a share too easily, before the value had outed, just for an emotional reason like I was fed up with it going nowhere. This happened even though the value was still there, nothing having actually gone wrong with the fundamentals of the share. I had come to think that because nothing had happened after, say, six months that nothing was ever going to happen. Wrong.

In my later experiences, as I refined my approach to try and get as near as possible to the ideal way to play value, I found that a value share stands a very large chance of being outed at some point provided the fundamentals don't go wrong. Sometimes they do go wrong of course but it is not those cases to which I am referring here. All you need to do is hang on long enough, which could easily be years. That is why a good yield is so important, it compensates for that wait.

The downside of being prepared to wait such a long time for any particular share to work is that your money is tied up in it, with the possibility that you might miss other attractive situations. This is particularly the case if, like me, you prefer to take large positions in a very small number of shares with your money, rather than running a larger value portfolio, though I advise other investors not to play it my way because of the risks.

So patience is absolutely essential to successful value investing. You're either born with it or like me, you'll have to learn it. Something I stress often in our Value Investing newsletter when discussing shares we select. Sign up for a free 30-day trail by clicking here.