In an ideal world, If I expect my portfolio to return 24% per annum, I would prefer to get 2% returns per month. That way at the end of each month, I would have a nice gain and would be feeling quite good about it.

Now all of us know that it does not work that way. In the last few years, however a lot of investors have come to expect that they ‘deserve’ to make 40% per annum and that too in equal increments with minimal drops along the way. If you think I am exaggerating, look at the mutual fund inflows and outflows to confirm my statement.

Impatience and mutual funds
If a mutual does well for a few months, they have a surge of new funds. If however, heaven forbid they drop for a few months, the money starts flowing out. In such a sceanrio a fund manager cannot be faulted for having a short term view. Mutual funds and fund managers have their faults too and I am not defending those faults. However impatient investors cause a lot of fund managers to take a short term view which affects the fund performance in the long run.

The above phenomenon is not limited to the indian markets alone. You can find it prevalent in almost all the foreign markets too. There is a lot of evidence that the average holding period for  investors has come down progressively. This shows up as higher volumes and more trading in the markets.
Patience and investing
Value investing requires a lot of patience, maybe more than what most investors or individuals have. I recently analysed my performance for the last 8-9 years and noticed that quite a few of my picks (maybe 80%) have taken 1-2 years to approach intrinsic value. What does that imply?

If I buy a stock for 100 and think it is worth 200, I may end up holding it for 1-2 years without any action on the stock. Then suddenly, the gap closes. I have seen the gap close in a matter of a few weeks.  So my net returns after, say 1.5 years could be 5-10% at best and then in a matter of weeks the stock doubles.

Now if you think you can predict when the gap will close, then congratulations !!!. You are on your way to becoming very very rich. However I do not have such a sixth or seventh sense. So I end up analysing the stock, accumulate it slowly and then waiting patiently for the gap to close.

I think one of the key advantage, we can have over others is to have more patience. I have repeatedly seen it work, though the interimn period is painful and full of doubt. The other reality is also that patience is rarest commodity on the stock market.

So when does patience become stubborn refusual to accept that the situation has changed and the stock price will never improve ..well that’s a post for another day

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