Investment Philosophy: Patience
By Christian Gannon on February 20, 2025
“Patience is bitter, but its fruit is sweet.” -Aristotle
“The two most powerful warriors are patience and time.” -Leo Tolstoy
The Nobel Laureate, Paul Samuelson, said that, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” Patience may be a virtue, but it is one that is learned through the painstaking process of waiting and quiet growth. Especially with our money, we have a desire to act. We feel the need to respond to every new stimulus that we allow to enter our minds. The reality in the markets is that much of the information that we take in each day is merely noise, which we would do well to tune out in most cases.
This can be easier said than done and is often a great reason to work with an advisor. This may be one of the most important ways an advisor can add value. It can be helpful to have an objective sounding board that can challenge assumptions and help think through challenging questions. There are times when a change of plan is needed, but in our decades of experience, it’s a lot less common than most investors think.
Good investing should make us uncomfortable. We are often thinking about investing in underperforming asset classes or moving capital away from outperforming asset classes. Both of these decisions are incredibly hard to do. Sometimes it gets darker before that light peeks over the horizon, however, having a plan and being patient can be rewarding in the long run.
What does patience look like in practice?
- Have a long-term horizon: Both in historical assessments of the market and in our forward-looking expectations. Avoid recency bias, overweighting what has happened in recent memory, when building portfolios and assessing performance. The S&P 500 has historically returned 8-10%1. Over the last 15 years, that return has been closer to 15% driven by an increasingly small number of companies2. From an asset allocation standpoint, expecting 15% per year from U.S. large cap stocks going forward could be a mistake. Focusing on recent returns could lead us to be overly pessimistic about the benefits of diversification and potentially buy more of already overvalued companies Keeping focus on the long-term and having a plan for each of the assets in the portfolio and use proper benchmarks (ideally your own personal return target).
- Tune out the noise: We are bombarded with noise each day. Some people are able to filter the noise better than others. Challenge yourself to find alternate viewpoints and maintain focus on the things that matter. Most of the information we take in will minimally affect us day to day. Over the long-term, entities and individuals adjust to whatever the new normal is and it gets processed into the market. A good mental exercise is to think about what we were worried about 10 years ago and take a look at whether that is still creating waves in the market today. Very few of those things are.
- Remain optimistic: It is always darkest before the dawn. Planning ahead and thinking long-term can help us to weather those challenging market periods without making behavioral mistakes like going to cash or piling into very risky assets at the wrong time. The markets are a tool that we utilize to execute a financial plan. The S&P 500 is generally not anybody’s actual financial plan. Each of us are on our own financial journey, and our goal as advisors is to help you identify the optimal amount of and types of exposures within your portfolio to meet your individual goals.
