In the recently released book, The Psychology of Money, the author Morgan Housel shared the story of Ronald Read. Ronald Read was born in a small town in the US. He worked as a janitor and a car mechanic for 42 years. When he died in 2014 at the age of 92, he made international headlines as a janitor who secretly amassed an US$8 million fortune.
The secret – Not Lottery. Not gambling. Ronald Read invested in blue-chip stocks and waited for decades. Thats it. While there are not too many like Ronald Read, there are still people out there who amassed fortunes by doing two things. One, they gave their investments time, and second, they showed patience. Just two things that had nothing to do with how smart or educated you are.
Time is one of the most potent factors in investing because it brings the magic of something Albert Einstein once called the 8th wonder of the world- Compounding.
Most of us understand or at least know compounding, thanks to the compound interest formula we studied in school. In investing, compounding happens when the returns your investments are generating also start delivering returns. This is sometimes referred to as “interest on the interest.” Think of this as a ball of ice falling down a mountain. It starts small, and as it rolls down, it keeps gaining mass and becomes enormous.
Being patient and staying invested may look like a boring strategy, but it has generated attractive returns in the long run. Even some of the most successful investors, including Warren Buffett, have stressed the importance of patience to succeed at investing. In Buffett’s words, the stock market is a device for transferring money from the impatient to the patient.
In 1973, Warren Buffet purchased shares of The Washington Post Company for US $10.6 million. A year later, the stock prices plunged nearly 20% and it took three years for the stock to grow past Buffet’s initial purchase price. However, post that, Washington Post’s prices kept increasing as the business managed to grow considerably and so did the value of Buffet’s holdings in the company. Buffet’s investment in the company is considered one of his most profitable ones. Had Buffet redeemed his investment when the stock prices started falling, he would have not only suffered losses on the purchase price, but also lost out on the future growth of the stocks. This successful investment can be attributed to his belief that the stock market is a device for transferring the money from the impatient to the patient.
Patience is an excellent skill which investor must learn gradually. Just because you’re a patient person while waiting in line at the bank doesn’t mean you’re a patient investor.
Not everyone can master the virtue of patience. But it is an important one for successful investors to inculcate because focusing too much on short-term gains can disturb your progress towards winning long-term goals.
When you invest in stocks, keep in mind that it takes time for any business to grow and generate profits. Therefore, it would not be wise to be bothered with what happens in the short-term, as long as you’ve made the right investment decision.
A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” – Warren Buffett
Warren Buffett once said that, “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
“In the end, how your investments behave is much less important than how you behave.” — Benjamin Graham So start investing in high quality growing companies as early as possible and invest for decades to create magnificent wealth! No need to worry about the falls if you have invested in high quality companies. Rather be happy and invest more in high quality companies in falls. You can make fortune.
