“The two most powerful warriors are patience and time.”
— Leo Tolstoy
What is the most underrated tool of the wealthy?
Is it that they have nice things?
The tax incentives?
The access to other high-net-worth people?
Nope!
It’s actually patience.
Warren Buffett once said that they don’t get paid for activity.
“We get paid to wait.”
If the most successful investor in the world says there’s value in patience, we should listen!
But, of course, it’s easier said than done.
Today, we’re going to get into how to use patience to your advantage.
Let’s get into it!
1. The Compounding Power of Waiting
What is the true compounding power of waiting?
John Templeton, who started the Templeton Fund, did this around the Great Depression.
He bought single digit price earnings stocks, which are small cap stocks.
These are stocks with low valuations.
You can tell they’re low by the price earnings ratio.
Templeton went all in with these stocks, waited them out, and made a fortune.
He made up to 10x his investment over this period of time.
That’s pretty amazing!
Michael Burry, the guy from The Big Short, earned 10x in about five years.
All over, there are stories of people patiently waiting for a great opportunity.
When that opportunity presents itself, they put all their chips in.
If you want to do the same thing, you need to make sure you’re investing in the right asset.
Don’t be afraid to say “No,” either.
This is your money and your future.
Sometimes, we have to say “No” so we’re prepared for the right opportunity when it comes along.
There is value in waiting to invest, including a significant option value.
This is especially true when the benefits are twice the investment cost.1
2. Delayed Gratification as a Wealth Multiplier
You’ve probably heard about the Stanford marshmallow experiment.
If not, the gist is that the researchers put a marshmallow in front of a group of kids.
They then told the kids if they could wait 10 minutes, the researchers would come back and give them a second marshmallow.
They would be rewarded for their patience.
That same idea can be applied to investing.
My brother likes to have nice things.
In contrast, I wanted to wait to have nice things so I could grow over time.
So, for a long time, I didn’t drive a nice car.
I didn’t have nice things.
If we can invest in ourselves now, we can play later rather than play now and invest later.
There’s an interesting documentary about professional athletes called 30 for 30: Broke.
It says between 60% and 85% of athletes go broke within the first five years after they leave professional sports.2
They got used to simply having stuff now instead of investing for their future.
Don’t be like them!
If you start investing at 25 versus 35, you’ll have exponentially more money just by starting 10 years earlier.
You’ll end up with up to 3x as much money depending on your rate of return.
It’s important to keep your goal in sight.
That’s how you can avoid spending all of your money chasing instant gratification.
Having a goal can help you get where you want to go.
3. Patience as an Investment Philosophy
Patience really is an investment philosophy.
We often vet new sponsors and deals.
At the end of the day, we’ll reject around 95% of them.
Sometimes even more!
And even then, if we say yes, it’ll take anywhere from 6 months to a couple of years before we actually invest.
Sometimes we’ll invest personally to get some experience with the operator.
We can afford to take our time, and so can you.
There will always be deals out there.
Finding the right opportunities can be a long process, but it’s always worth it.
The “right opportunity” is different for everyone.
But, in general, you should find deals that help you meet your goals and have an outsized return.
You should also aim for a time where people are feeling afraid of certain investments.
Some of this might be common sense, but it’s easy to jump on a bandwagon.
It’s easy to want to get in when everybody is getting in.
It’s easy to want to get out when everybody is getting out.
However, panicking when an investment crashes won’t help you in the long run.
Instead, keep a level head.
Be greedy when others are fearful.
Now, I want to hear from you!
How will you be practicing patience in your investments this year?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
Works Cited
1. R. McDonald and D. Siegel. “The Value of Waiting to Invest.” NBER Working Paper Series (1982). https://doi.org/10.2307/1884175.
2. Corben, Billy, dir. Broke: 30 for 30. Aired April 25, 2012, in broadcast syndication. https://www.netflix.com/title/70239460.
