I’ll admit that I’m about to bare my investing soul about one of my last great remaining weaknesses as an investor: impatience. May you benefit from what I’m about to share. I write this in the shadow of selling my position in Google (GOOGL, GOOG) a few weeks ago after 1 1/2 years of very little activity which, as I’ve mentioned in other posts, hardly qualifies as the minimum 3 to 5 years that a person should hold a stock for. What happened? It spiked over 25% within a week of me selling it.
It that wasn’t bad enough, I did the same only a few months before with another stock back in February 2015 that that I had owned for only about 13 months. It had bounced around my buy price that whole time, only to begin spiking dramatically upward within a week of selling it. Two months later, it peaked at 32% above what I sold it at.
Why did I even sell these companies in the first place? In both cases, I was in a place of being bored as an investor. For me, that can occur when individual stock prices or even the market moves mostly sideways for an extended time, or when I’m trying to endure the boredom of saving up for my next investing purchase.
Regardless of their nature, the above examples illustrate that it’s during times of boredom when I’ve made the most mistakes as an investor. Despite realizing the merits of buy-and-hold and even preaching about it in several of my other posts, this does not make me immune to making mistakes, to temporarily diverting from my plan of buying and holding for the long term unless bad news about an individual company compels me to sell.
So what have I learned that I hope to do differently the next time I get bored? I realize that I need to learn how to become a bored investor, to be comfortable with doing nothing and to not get trigger-happy to sell when things don’t seem to be exciting. More specifically, I hope to:
1. Hold onto a stock that seems to be doing nothing IF you still believe in its long-term story
My biggest mistake in selling Google and my other position back in February was that there was nothing wrong with either company’s long-term prospects or financial situation. I just thought I had found different companies to invest in with better long-term outlooks. The only problem is that I don’t know if I gave up the better long-term companies in the process! Although I can lament these short-term spikes in positions that I sold, perhaps my intuition will end up being correct in the long term.
Another way to encourage myself despite these recent hiccups is to remind myself about how my patience has paid off with other holdings like Starbucks (SBUX). For the first year that I owned it, it floated up and down like Google, at one point even nearing a 10-percent loss. However, all I kept reading about was good news and so I held on. Why sell something unless the news turns incredibly bad? (Examples of recent bad news: DDD and WFM. Thankfully, I sold them before the news got really bad!) Then last October, the price finally broke out and is up considerably in only about 10 months. But if only I could go back and change what I’ve sold this year … Alas, with investing as with life, one cannot dwell too much on past mistakes or else they’ll eat you alive.
2. Remind yourself that doing nothing is often the key to long-term returns
One might argue that the main key to the success of investors like Warren Buffett is doing nothing for long periods of time, which equates to excruciating boredom for all but the most patient of investors, but this is why only a tiny handful ever experience incredible success as investors. Yet his market-pummeling results speak for themselves. Here are a couple of quotes by him that have really encouraged me (emphasis mine):
“Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
My takeaway from these is that learning how to be bored is the key to maximizing your returns over the long term. You need to remind yourself to be wary of selling anything no matter how boring its performance is after you buy it.
To hammer home this point, a recent article by Tom Gardner, one of the co-founders of The Motley Fool, told about a woman who, by the time of her death in 1995 at age 101, had amassed a portfolio of more than 100 stocks worth $22 million. The crazy part is how she had never earned more than $4,000 per year!
During her 23 years as an employee at the IRS, she had learned that great fortunes are created by owning and holding stocks. Knowing this, she invested her $5,000 of savings into public equities, into blue-chip dividend all-stars of her time, and eventually many others. She also reinvested the dividends. She rarely, if ever, sold her stocks as this would have generated capital gains taxes. Only by doing these things did she achieve after-tax, market-beating returns over the long term.
Learning to think how investors like Warren Buffett think, reading stories like this ordinary woman with extra-ordinary patience, and thinking about the number of quality stocks that I’ve (you’ve?) sold that would have given me large returns had I not sold them – all these things need to serve as lessons to keep us comfortable, even encouraged, during times of boredom.
3. Spend a couple of hundred dollars per year for a service/services that will encourage and educate you
Articles like the one by Tom Gardner are available only to people who subscribe to a Motley Fool service. I also get encouragement through my subscription to a newsletter by another investing advice service. Given how my stock investing returns thus far are many times more than what I’ve spent on these two subscriptions in less than two years, I will never choose to be without a subscription to an investing advice service as long as I’m actively investing in the stock market.
Yet up until nearly two years ago, I couldn’t see the point of doing this. For one, I was too cheap, but I was also convinced that I could figure things out myself, yet I never could and the dismal (negative) numbers spoke for themselves.
Now, my reasoning is different. I would argue that the saying, “It takes money to make money”, is largely true in the case of investing. Your best advice will come through subscribing to a successful stock advising service (or maybe two or three) plus buying and learning from great, classic books about investing by the likes of Peter Lynch and Benjamin Graham.
What I’ve learned is that these resources are not only part of a literal treasure-chest of incredibly valuable advice that you’re simply not going to find for free on the web, but they also encourage me to hold the course, especially when times get tough or uncertain but even when they appear to be boring.