Investor education, humility and patience – in no particular or of preference or significance – , in my opinion are one of the key traits an investor should possess. I cannot but stress on the importance that in order to attempt to be successful and come close to achieving his/her investment objectives, an investor needs to attempt to master all three key traits.
Patience is a virtue, in any aspect of life. However, it can be extremely difficult for investors to champion being patient, even for the seasoned investors. It is commonplace for investors to become impatient and expect results in a short period of time – that is human nature, which unfortunately is inevitable at times. Clearly, emotions play an important role; focusing on short-term results may impede progress toward achieving long-term investing objectives, thereby limiting the potential of and investor’s portfolio and resulting in taking impulsive decisions. In fact, an investor’s patience, grit and courage to ride out bumpy market fluctuations over a long period of time may be more important than what s/he actually invested in. A typical case in point is that investor who stuck to his guns when markets returned a dismal 2018 calendar performance, but recovered sharply in 2019.
Investors share quite a number of traits, and impatience is up there with one of the most common. Studies show that investors who had an investment horizon of 5 years or more tended to grow impatient and that investment horizon quickly turned into a 3 year investment. However, one must not generalise as this can be explained by demographics (investor age), investor education, investor experience and the reason why that particular investor invested his/her money in the first place. This is where financial education kicks in; rushed decisions could be taken if an investor was not made aware about the risks related to the exposures his/her investment portfolio was being exposed to.
Investing is already stressful in itself. Impatience cost investors lots of money. Not following adequate investment advice. Steering away from original investment objectives and goals. Even worse; undertaking more risk than is tolerable (in the hope of making short-term gains) could prove harmful and might prove even harder to recover from. Over a short-period of time, the cost of being impatient impatience might be difficult to quantify, but over a longer period of time, this could equate to a significant amount, and potentially shrink investor wealth. Investors tend to exit from investments which have temporarily underperformed into securities which have performed well, thereby running the risk of buying high and selling low, which is clearly not commensurate with generating good long-term results.
It is critical to work on their patience levels by taking a step back and being aware of their own behavioural traits. Being emotionally tied to money makes an investor more prone to react rashly and make uncalculated mistakes at the most inopportune of moments. Having a diversified portfolio will enable a portfolio’s return to be smoothened over a longer period over time and will reduce an investor’s temptation to try and time the market.
Yet again, investors ought to critically and routinely reassess their investments, ensuring that the holdings still align with their objectives and that the investment portfolio still serves as an insurance for them to cover short-term needs in the event of a market correction.
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