Yesterday, Jeff Bezos put out his annual letter to shareholders, which you can read here.
Jeff shared his thoughts on what makes Amazon so successful: high standards. He acknowledges that a combination of many things makes Amazon what it is, but strongly believes their standards to be a driving force.
Bezos outlines the four elements of high standards, saying “they are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope”.
Likewise, I acknowledge that successful investing is a combination of many things. I strongly believe one of the driving forces behind it is dedicated patience.
Patient investing fits into the “four elements” mold Jeff Bezos describes Amazon’s high standards with.
Intrinsic or Teachable?
Is patience intrinsic or teachable? I believe patience is an acquired trait, and therefore, teachable. Patience is likely to have a far greater impact on investment success than IQ, pedigree, or even strategy itself. For any of those things to help us, we need to have the patience to let them. Investors who fail to learn patience are forever doomed to the performance chase. This is unfortunate because as Michael Batnick recently wrote, most of us, “can do just fine by chasing patience, an edge that can never be arbed away”.
While investment strategies come into and out of favor regularly, patience never goes out of style. The greatest investment strategy in the world is useless if you cannot stick with it. We have the ability to practice and refine our patience, and investors would be wise to do so. One way of doing this is to become self-taught. We can accomplish this by keeping a journal of investment decisions and thoughts to reflect on in the future. This is a great way to avoid self-delusion and will provide valuable feedback on our patience and process.
Universal or Domain Specific?
Patience is by no means universal. While we may find it easy to have patience in one area, it can be incredibly challenging to exercise in another. Somebody who has no trouble waiting in a long line at the grocery store may feel frustrated when their investments aren’t making quick progress. Life’s funny that way. The patience we need is always the same, but we subconsciously and selectively choose when to apply it. Realizing that we selectively practice patience can help us get better at it, but not even the Dalai Lama has universal patience.
Recognition and Scope
What do we need to achieve patience in a particular domain, like investing? First, we need to be able to recognize what patient investing actually looks like. When I think of patient investing, the first thing that comes to mind is Warren Buffett’s assertion that, “Lethargy, bordering on sloth remains the cornerstone” of his investment style. Additionally, we’ve all seen charts of long term stock market returns: up and to the right. Patient investors do very little, and are rewarded for their virtue with good returns over time. In this regard, it’s fairly easy to recognize what patient investing is.
However, Buffett’s sage words and long term return charts neglect the second part of our equation: scope. Scope means having realistic expectations for achieving the desired result. In hindsight, patient investing looks like a layup. Somebody who invested in the S&P 500 ETF (SPY) back in January of 1999 has more than doubled their money since. Easy money, right? Consider that on the way to doubling that money, countless setbacks were experienced and after a decade, there was no progress to show for exercising that patience. That’s applying scope.
To adapt a line from the Bezos letter for my own purposes: unrealistic beliefs on scope – often hidden and undiscussed – kill patient investors. After figuring out what patient investing is, we also need to be honest about how difficult it will be to achieve. A lot more goes into it than just kicking back and making money. Everything looks and sounds easier than it is, and patient investing is no exception. Do not underestimate how difficult patience will be in practice.
There are probably other factors that make investors successful, but the value of patience cannot be overstated. While patience is not universal, we have the ability to hone it in specific domains. We can accomplish this through self-reflection and intellectual honesty about how difficult it will be. No pain, no gain.