Patience Is A Virtue

Patience Is A Virtue

October 09, 2019

Originally posted Monday, December 28, 2015

Hello my friends. Today is Sunday Dec 20th. I’m in my office now writing this after a quick stop at Wegmans. For those of you unfamiliar with Wegmans it is only the world’s greatest supermarket (this is a statement of fact and not debatable) and one of the great joys of Syracuse.

As I’m checking out I see the cover of this week’s Barron’s extolling the virtues of Microsoft stock. What’s interesting is that for years MSFT stock has been feeble. I have had countless conversations with clients who questioned the wisdom of holding on to this “market laggard”. Understandably so.

Investing your hard earned dollars and not seeing an immediate benefit is hard to do. Microsoft stock has done well in the last 10 years. In fact, it has doubled. But it has not been an exciting ride. The stock spent 7 years going nowhere—an especially long 7 years if you ask anyone who owned it.

From its midpoint price in 2006 to its average price in 2012, the stock was $27 per share. Now 3 years later, Microsoft is priced over $55. Not a very linear performance, but one worth sticking around for.

Stocks reflect partial ownership in real companies with real products, services and earnings. For those shareholders who believed in Microsoft and believed in the performance over the long term, they have been rewarded. Investing is a test of patience.

Microsoft is not unique in providing investors with this type of asymmetric return. Among popular stocks , these return sets might surprise you:

  • Disney: $28/share in 2006, still $28 in 2011…$108 today.
  • Amgen: $65/share in 2006, still $65 in 2012…$158 today.
  • Bristol Meyers: $25 in 2006, still $25 in 2011… $68 today.

The list goes on and on but the point remains the same. Stock ownership requires patience!

Warren Buffet has described the market as a marvelous tool for “transferring money from the impatient to the patient investor”. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so too will the portfolio’s market value.

One of our clients describes the attempt to change investments as “changing lines in the supermarket”. As soon as you give up and change lines the one you were on starts moving faster.

This type of “action bias” is not limited to individual stock ownership. The S&P 500 returned an annualized 9.2% per year between 1994 and 2013 while the average mutual fund investor earned just 5% per year.1A Dalbar study of Equity Mutual Fund Flows attributes this difference to investor’s attempts at market timing. They concluded that “Investors tend to sell after experiencing a paper loss and start investing only after markets have recovered their value.”

The devastating result of this behavior is participation in the downside while being out of the market during the rise.”2c

2015 has been a challenging year for investors. As of this writing the S&P 500 is down 2.28% year to date and on pace for its worst year since 2008. Our advice is:

  • Remember to stay focused on the long term. Stock prices tend to rise over time along with economic growth, inflation and dividends.
  • Look for opportunities to invest in companies that you admire and have come down in price.
  • Consider investments outside of the US that have come down substantially in price yet frequently trade for lower multiples and with higher yields than their US counterparts.
  • Finally, stay “focused on the outcome”. If your retirement is 10 years away and your goal is to accumulate a portfolio of investments that will generate future income then you can take advantage of volatility to add quality investments at lower prices.

We wish you all a Happy Holiday Season and a prosperous New Year. As always we appreciate the opportunity to help you reach your financial goals.


1ASource: John Maxfield, 8/25/2014
2cForbes 4/24/2014 “Why the Average Investor’s investment return is so low”

Past performance is not indicative of future results. The individual securities mentioned in this article is not to be construed as an offer or solicitation.