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Investing Is Kind of Like Fishing: You Have to Wait for the Big Catch

Patience is Powerful, But It is Much More Than Doing Nothing

One of the most common pieces of advice investors hear is to be patient, but it isn’t nearly as simple or easy as it sounds.

Patience can be active or passive, and in the stock market, active patience is very important. Active patience means that you embrace the period of waiting but stay aware that a time will come when you will need to act.

A good analogy is fishing. Once you make all the necessary preparations, you put your line in the water, and then you wait, but you can’t just sit there and do nothing forever. You may need to rebait your hook or cast a new line. At some point, you may actually hook a fish and have to act quickly and decisively to land it. Fishing works best when you can remain content and wait for long periods, but still stay aware of the necessity of making necessary adjustments.

One of the most overlooked qualities of good traders is the ability to do very little for long periods of time and then to suddenly spring into motion and make big aggressive moves. One thing that I work on quite often in my trading is to trade much bigger when the time is right. It’s easy to make small moves. It is much harder to go from zero to 100 in a very short period of time.

Typically the advice to stay patient is applied to the holding of an individual stock. Just buy and sit and wait for it to do what it is supposed to do. It is the hallmark of investors like Warren Buffett, but if you are patient and inactive in the wrong situation, you will cost yourself big. Buy-and-hold investing works great when you have compounding working for you, but it works in reverse also, and inaction with the wrong stock will cost you for years. You can’t just be patient with every stock you buy. You have to constantly evaluate and judge whether your patience is justified or not. Patience doesn’t relieve you of the obligation of vigilance.

Patience can be even more important when you are holding high levels of cash in a poor market, as we have currently. There is a natural inclination to want to buy stocks as they fall and appear to be much better bargains than they were previously.

It can be extremely hard to resist the inclination to put cash to work quickly into weakness. One of the most common trading mistakes that people make is that they average down into a stock too big and too fast. They are impatient when it comes to deploying capital.

Another form of impatience is the inclination to keep trying to call exact market turns. The challenge of timing the market with precision is hard to resist, but in most cases, it pays to be patient when trying to anticipate turning points. There is less risk if you stay patient and act after support or resistance levels have formed, rather than trying to predict in advance.

I’m working hard right now on my active patience in this bear market. My cash levels are high, and I am doing very little buying, but I am watching charts closely, researching individual stocks, and working on shopping lists. When conditions change, and I believe they are more favorable, I will increase my buying, and when I feel a clear trend is developing, then I will be far more aggressive.

Currently, I’m like the fisherman sitting in his boat, with his line in the water. I’m not going to do much of anything for a while, but I am going to stay very vigilant and will be ready to act when conditions change. I am extremely confident that there will be tremendous opportunities if I just stay patient and keep watching. The hardest thing to do is to block out all those experts who think they can predict the future and just wait for a few actual nibbles on my fishing line to develop.