In light of the volatility in recent weeks, which has resulted in most of the major global equity indices suffering losses, and the “bad” news affecting some companies, the time has come to really live up to the title of this post. Even if this means going against our instincts, as a well-known “value” manager once remarked: “Volatility isn’t necessarily a problem. The more a market falls, the greater the opportunities to find undervalued companies”.
The “value” manager uses these falls to strengthen their investment fund portfolio and take the initiative in search of a higher future return. The most striking comparison is perhaps with a youth with a skateboard who uses the sharp drop in the U-shaped area of the track to gain momentum in search of their best jump.
Patience or the “art of knowing how to wait”, as I understand it, is nothing more than the resilience that every human being shows in dealing with the challenges that life throws up in order to continue to progress as a person and achieve their goals. It’s a matter of taking life slowly but steadily and with an optimistic outlook. It’s an approach we should take in all areas of our life: personal, professional….
As we grow, we develop this ability, some quickly and others more slowly. As children we always wanted things straightaway but, with the passage of time, we start to set priorities and are able, in most cases, to wait for the right moment and to not rush. Not to always act on impulse but to try to take a broader view and analyse the consequences of our future acts, without needing to take hasty decisions.
As many of you will be aware, patience is one of the cornerstone of value investment. Managers who adhere to this investment philosophy need to be patient when they invest in companies which, for whatever reason, the market is punishing. And this patience must be underpinned, as ever, by an exhaustive analysis process in order to understand that the reasons for this poor stock market performance are temporary and that it is a good business. Now all that remains is for time to prove them correct and for the market to eventually recognise the company’s intrinsic value.
Over the course of the investment there will be good and bad news. They must be able to analyse this news, decide whether to change their investment rationale and, most important of all, not get caught up in the herd. Here the role of biases undoubtedly comes into play, but rather than expand we’ll leave it to some brave individual to write about how biases affect decision-making.
Being positive will also result in you becoming proactive
And very closely related to patience is positivity. Being positive isn’t simply putting on a brave face at times of adversity but believing that everything that might turn out badly is going to turn out well. Although this sounds simple it sometimes isn’t.
When things are going badly the problems tend to arise in succession: those notorious runs of bad luck. That’s why it’s important to turn the page, think about our next goal and do our utmost to achieve it.
Being positive will also result in you being proactive and no longer a person who simply waits for things to happen. Being positive involves acting and knowing how to anticipate potential problems. As I stated earlier, life is far more simple if we approach it with an optimistic outlook. A positive outlook requires constructive, objective and healthy reasoning and the ability to learn to think about nice, pleasant things.
Applied to the personal sphere, we could come up with many examples of perseverance and we almost certainly all have someone close to us who would serve as an example. I have opted for the world of football.
I’m sure people of all ages will remember Ronaldo Luís Nazário de Lima, better known simply as Ronaldo. One of the best players of all time. A Brazilian from a poor background, he suffered a serious knee injury at the age of 22 when he was at the peak of his career, having won the Ballon D’Or, awarded to the world’s best player, just a few years previously. This injury would keep him on the sidelines for at least six months.
But with the positive outlook for which he is renowned, with commitment and a great deal of hard work, he recovered. But when he returned to the pitch he injured the same knee again. It was terrible luck for a young player with his entire career ahead of him. And… he came back again. After a year unable to play football, he recovered and attained peak form once more, claiming another Ballon D’Or in 2002. A fantastic example of patience and a positive attitude as a platform for success!
Returning to the topic of investment, a positive attitude will help prevent the house of cards from collapsing. Or, and this amounts to the same thing, having reviewed the investment case, managers are able to turn around “bad” news and view it as an opportunity to buy the same business at a bigger discount. They should not be overcome by pessimism, rushing to sell simply because they have a company in their portfolio which most of the market doesn’t favour.
We’re human and we can all make mistakes, minor or more serious, with our investments. Which is why it is so important to leave our savings in the hands of professionals with wide-ranging experience in the world of management and who inspire confidence. And if they also co-invest with us so much the better. Their good work and our patience as co-investors, riding out the falls and even seeing them as an opportunity to buy, will enable us to obtain a satisfactory return in the long term.
Finally, I can tell you on good authority that it is necessary to be patient, that everything comes with hard work, effort and patience. Or at least that’s what I’d like to think! I assure you: “Good things really do come to those who wait!”.