The big money is not in the buying and selling. . . but in the waiting. – Charlie Munger, long-time business partner of Warren Buffett
I was wondering one time. If Warren Buffett can make a lot of money in the stock market, why can’t I? That’s a bold statement. But I believe only when we are courageous enough to do something that a different result happens to us. Only when we are willing to sweat that we achieve what we want. And you know what, even being patient demands sweat.
If you happen to read my last article, continue reading this one. This is one of Warren Buffett’s secrets. This is what makes an ordinary investor be like him.
Buffett stresses that it doesn’t take a genius to make money in the stock market. Thank goodness! One time I saw a book entitled, Why Smart People make Big Money Mistakes. In the stock market, one of the answers is being impatient.
Let me explain this through the three movements in the stock market: sideways, downtrend, and uptrend.
Sideways
I think most of us who are in the market experience this: when your stock seems to be not moving, there’s an urge in you to sell it! When it declines, the more that you want to sell it! More so when you see other stocks move up almost every minute! You start to think that you probably made a mistake.
Let me tell you my story with PNB (Philippine National Bank). I hope my memory still serves me right.
I bought this stock in 2009 at around P15 (AU$0.83). After some time, it went up to more than P25 (AU$0.64), then back to P22 to P23 and stayed there for a long time. I could see other stocks soaring! And guess what? I got bored and sold it at P23 (AU$0.59)!
After I unloaded it, it just began to fly. And so I had the feeling that I was the burden! It was just waiting for me to sell before it starts to soar! Now it is P84 (AU$2.14); it even went up to P116 (AU$2.95) in 2013. Talking about being impatient! Well, I was a rookie then, impatient, and didn’t know much about PNB. (Excuses!!!!!!!!!)
Downtrend
If you see that the figures in the market are red, it means their prices went down. Again, for those who are already investing let’s admit it, it pains to see our stocks be in red. The more we panic when they continue to slide. Whew! I know exactly the feeling. Even those who promise to be long-term investors do panic. The worst is when we sell causing us to lose money!
Three week ago, it was in the news that the great Warren Buffett lost US$2 billion of his investment in IBM (actually this is just paper loss, not real loss). That’s a lot of money! Did he sell his shares in the said company? No!!!!! He was calm. Had he sold, he would have lost indeed that big amount of money.
As long as Buffett knows that the company is still a great one and run by capable managers, he won’t sell. He ignores the market. He even prefers that prices of his stocks go down so he can buy more! I tell you, it takes a lot of guts to buy more shares in a downtrend. But it’s actually the best move if you want to profit more. Remember that red is not permanent.
Sadly, most people in the market do otherwise (and I still have that tendency sometimes). I once met a woman in a seminar. She told us her story with MER (Meralco). During the bull market in 2007 she bought this company at a price of P100 (AU$2.54) plus.
When crisis hit the markets in 2008, MER bottomed at the price of P36 (AU$0.92)! The good thing is she did not sell but she did not buy more shares either. She got scared she told us. I just hope she still has it now at P261 (AU$6.64) a share. It even went up to P397 (AU$10) in 2013.
So, even if you happen to choose a company that fits the criteria I mentioned in my last articles, you will still miss a lot of money if you panic and sell. Being impatient is really costly. Remember this: the power of patience can make miracles in your pocket.
Uptrend
The tendency of most investors when they see that the market is green, which means prices are going up, is to buy more. Not all the time but most of the time this is a mistake. This is what happens when you buy as prices go up: your average cost becomes higher.
Consider this scenario: you buy shares the first time at P10 and then you buy again the same stock when its price goes up to P15 because you got excited. Assuming in both instances that you bought the same number of shares, your cost would now be P12.50 (average of 10 and 15. Thank heavens they are just addition and division).
It would be a different case if you buy it first at P10 and buy again when it goes down to P5. Your cost would be P7.50 (again, assuming that you bought the same number of shares). The same business principle applies here: the lower the cost the better.
Moreover, as long as the economics of the business is still good, selling your stocks should be your last option. You know my story of URC. I got nervous and sold too early.
Hence, either the market moves sideways, down, or up, stay calm. Don’t be in a hurry to make money. As long as you’re in a good business, over time you will do fine. As Warren Buffett says, time is the friend of the wonderful business. Just be patient. For how long? My minimum holding period is three years.
Notice how patient we are when we put our money in a bank for time deposit. We are willing to stay on even if we receive a tiny interest. Even if inflation eats up the interest we receive, we cling to it. That’s exactly the same approach we should do when we are in the stock market. Stay put.
Disclaimer: Stocks that are mentioned are not recommendations for you to buy or sell them.
My next article will be about my biggest winner which is DMC (David M. Consunji Inc.).
