Is patience your most valuable financial skill?
Patience, put very broadly, is the ability to accept and tolerate delay without getting angry and upset. Never before have I known the importance of patience until I was told that I could not run for fifteen weeks. I was faced with a task that seemed impossible to accept; sudden turbulence I was not expecting – I was performing well, running 10km a day and seeing improvements in my heart rate and timing. I feel as if I have lost all that I gained I made because of this unexpected turbulence. With each day that passes my frustrations grow bigger as I see my performance dip lower and lower along with my moral. The only thing I can do is be patient, ride the wave, and wait for the fifteen weeks to pass, because one run may bring instant gratification but will make things worse for me in the long run.
Instant gratification is the need to experience something now without having to wait for it. It is not necessarily a bad thing – there is nothing wrong with wanting to experience things in a timely manner. What is important is the way we define ‘timely manner’ and how well it suits what we are aiming to achieve. In our day and age, we are used to having everything we want at the click of a button, and this has put a thorn in the wheel of our patience. We are constantly connected to the entire world – we get instant news updates on events happening miles away from us and instant replies to texts and emails; we can order our dinner and be eating on our sofa in under thirty minutes or order a package have it delivered that very same evening. As a result of this instant world we have created for ourselves we are a lot less tolerant of delays and in the absence of instant feedback and results, we become frustrated and take quick decisions in an attempt to speed up the process. However, just as the saying goes, good things come to those who wait.
Most important things and goals in life cannot be achieved instantly but require diligence, perseverance and patience over the long term. The choice between instant gratification and long-term rewards is never an easy one. Consider choosing between sleeping an extra hour and a sunrise jog, buying the latest fashion or saving for retirement. We see this choice in any area of our lives – be it your relationship with your partner, your career that required years of study, and of course, your retirement fund that requires years of saving. Patience plays a big role in our daily decision-making process, perhaps a bigger one than any of us realise. It is a skill that no one is born with – just ask any new parent how patient their baby is. It is a life skill that must be learnt, and possibly one of the most overlooked and underused financial skills.
As Warren Buffett put it, ‘The stock market is a device to transfer money from the impatient to the patient’. Patience defines the way we react to external situations and circumstances that have interfered with our plans or expectations. When you are in a stressful situation, your brain will release this chemical called cortisol, triggering a fight-or-flight response – the quickest way to save yourself from a dangerous situation. Our brains perceive a turbulent stock market as a threat to our financial well-being, triggering the same fight-or-flight response our bodies would feel if a wild animal was staring right at us, prompting us to do something to protect ourselves. Experts advise you to remain calm when faced with a wild animal, back away slowly, and avoid running away – this hasty reaction would only make things worse and encourage the animal to chase you. When faced with turbulent markets, in a similar fashion, the best approach is to remain calm and avoid running away from investments in an attempt to cut losses. When we make decisions whilst under the influence of cortisol, our judgement is clouded and we are less able to make rational decisions. We will be more concerned with our short-term future than our long-term goals and often end up making moves that cost us more than the problem itself.
My trainer was very clear – one short run to correct my short-term frustrations will cost me extra weeks of frustration. When it comes to running, I am trying to play the long game. I would like to be able to run long-distance races for many years in the future, and for right now, the best thing I can do is to keep focused on these long-term goals and not let current turbulences set me off path. Investing also means playing the long game. In order to play the long game, your patience must also be long-term. It is important to avoid short-term reactions to unpleasant news and remain focused on long-term goals. As I explained in my previous article, markets will go through cycles over time and investment performance will fluctuate in response to current circumstances but will even out over time. In our alert filled world, it is difficult not to be alarmed or frustrated when seeing our investments down. Most of the time, however, the best thing to do is nothing. Patience allows us to make more productive decisions which often lead to greater success.
Our two cents: Investing and patience go hand in hand – do not react to short term news, be patient and employ a wait and watch approach until the markets correct themselves. If the fundamentals are in place, don’t worry about your investments over the short term, but keep focused on the long-term end goal. Remember, if there is a need for worry, your Black Swan Capital advisor will contact you.
