Many people think that the best characteristic to be successful in portfolio management would be analysis skills. While analysis skills are very important, I would argue that it is much better to have another characteristic.
Most institutional portfolio managers are unable to take advantage of this characteristic. One of the primary reasons is that their portfolio holders are just not suited to accept the use of it. Individual investors can take advantage of it easily. That characteristic is patience!
Institutional portfolio managers have their “feet kept to the fire” to always beat the category benchmark. Therefore, if an investment idea doesn’t show promise within a quarter or two, they are out of it. This is why the portfolio turnover of most funds is really high. For example, a 100% turnover in a year means essentially all their securities have been replaced. “They are as nervous as a long-tailed cat in a room of rocking chairs!”
On the other side of things, the businesses that they own cannot change significantly in a day, week, month, quarter or a year. Even fast moving companies take well over a year to change their business to show a pronounced change in true profits (other than sharp pencil accounting!). Gauging their performance using the stock market is like trying to assess the amount of global warming by following the temperature each day for a year. It is just too short a time period to see any real results!
As an individual investor, securities that have promise can be bought and held for extended periods of time where the long term business trends can be captured and reflected in the market’s price. I’ve held securities that no one wanted for extended periods of time where the market treated the security like it was going “the way of the dodo”. Intel, NVIDIA, Costco and Valero are perfect examples of this.
Benjamin Graham, the father of value investing, once said: “The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”
So next time you buy a security, remember “Patience is a virtue!”
Be safe, be smart, be prepared, be well-read and be successful!
