Role of Patience in Investing
Charlie Munger graduated from Harward Law school and he started investing in equities to earn more income. When it comes to investing, he always gave importance to Discipline and patience. With patience, you wait for investing opportunities and with discipline, you act upon it. Let us consider God Of Cricket, Mr. Sachin Tendulkar is playing a match. If he starts aiming to swing his bat to each ball he faces, what would be the result? Definitely, all shots can’t be six. It increases the chance of losing the wicket. Similarly, in investing if one tries to invest in all the mediocre opportunities, returns will not be worth the risk. Even the more experienced Sachin will not aim for six every ball, as his focus is on winning, not merely swinging the bat.
Similarly, in investing if one tries to invest in all the mediocre opportunities, returns will not be worth the risk. Even the more experienced Sachin Tendulkar will not aim for every ball six, as his focus is on winning, not merely swinging the bat. A common problem in investing is investors try to swing too often irrespective of the quality of investment opportunities. As a professional investor one should honor the skills to find out few major opportunities. When odds are favorable, readily act on it.
“It takes character to sit with all that cash and to do nothing. I didn’t get top where I am by going after mediocre opportunities.” ~Charles Munger,
Investing 20 Punches Approach
Many Buffett followers talk about the “punch card” approach to investing, but very few people actually implement this approach.
“I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.” ~ Warren Buffet
This emphasizes the importance of diversified as well as concrete portfolio. As in cricket, in investing to keep the scoreboard ticking one has to focus on the playing field, not on the scoreboard. Sachin had played 200 tests and 463 One day Internationals. He had failed to score in many of these innings. Sachin has a batting average of 53 and 44 in test and ODIs respectively. In investing also few of your investing picks may fail as some outcomes are outside of your control. As an investor one should focus on long term growth and generating above average returns.
Checklist of Investing
No matter how talented you are, how much experience you have in investing, it’s worth using the following checklist.
Whats your financial objective from this investment?
Preparation for finding the right opportunities.
Measure your risk and risk of the opportunity.
Proper Allocation of capital.
Independent thought to have conviction
Decisiveness to invest.
Focused, yet diversified investing.
Patience to hold.
As Munger says, excessive diversification is Madness. Ability to take criticism constructively and learning from it can be a real edge.
How to be happy Investor
To live happy and contended life one should be satisifed with what he has. While investing one should know what to be avoided. One should be a progressive learner. Keep your mind open to learning from others experience. Fix your mistakes faster than others.
In the beginning of the article, one might have thought why I mentioned about Charlie’s education. While attending law school he realized that success in life and learning would be a multi disciplinary one. You may be from any education background. If you are able to handle basic mathematics, proper investing knowledge, and proven system, you can be the next successful investor.
“And with that, I have nothing more to add”~ Charlie Munger