A number of years ago I decided that I wanted a foot massager. In exchange the specialty store said they wanted $250. While I could easily afford it I could not bring myself to pay that price and so deferred my purchase. The following year the local department store had a pre-Christmas sale going on and there in a sales box with assorted items was the desired foot massager on sale for $100 – what I certainly was willing to pay for the pleasure it would bring. My patience and deferred pleasure was well rewarded with a substantially discounted "bargain!"
What does my pursuit of my foot massager have to do with investing and investments? Well, thanks to the founder of DFA, David Booth (the underlying funds we use in our portfolios) he discusses below a subject I have on occasion utilized to illustrate one of the many advantages we obtain by utilizing their funds – the virtue and profit that can accrue to an investor by adhering to the discipline defined by one word:patience!
Patient Trading in Life
by: David Booth
“A while back, I took a friend on a tour of our global headquarters in Austin. As we walked the trading floor, my friend was struck by the state of calm he found there. Nobody was rushing or screaming. Nobody looked upset. If you didn’t know what you were looking at, you might have thought not much was happening at all.
But a lot was happening. These traders were doing something we’ve practiced since the very beginning: patient trading. The idea is simple. You don’t chase the price. You let the price come to you. You wait for the right conditions, and if they don’t show up today, you wait some more. The more anxious person in any transaction is going to get taken advantage of. So don’t be the anxious person. Stay calm.
When I started the firm in 1981, I wore many hats, including portfolio manager. I’d put out orders for how many shares of stocks we wanted to buy and sell of which companies. One day a broker called back and said, “I know you wanted 500 shares of this company, but I found 5,000 shares. Are you interested?”
I realized, with hundreds of names in the portfolio, if I were to buy a little too much of one, and too little of another, the effects would cancel out. So, I said,“Okay, well, I’ll consider buying more than I wanted of your stock, but I don’t want to pay the current price if I’m going to buy so much. What can you do for me?” Because the other side was more anxious, the broker checked and came back and said, “Yeah, they would take a rather significant discount from the current price.”
“In that case,” I said, “I’ll be happy to buy it.”
I used to tell our traders, “Don’t be a hero.” If a stock is trading funny, stand back and wait until it starts trading reasonably. Wait for anxious sellers who are willing to sacrifice price in exchange for speed. And if they aren’t willing to budge, don’t trade.
I’ve learned that flexibility can add value. It means less pressure, and better prices for investors…. Over time, I realized that this approach—“Participate, don’t initiate”—was a useful way of seeing the world. How many times have you watched a movie or TV show where someone in a crisis says, “Don’t just stand there, do something!”? In some situations it’s better to tell yourself, “Don’t do something, just stand there.” When we feel uncertain, our gut tells us to act. Do something. Anything. But in my experience, the impulse to act right now is often not your friend. This is especially true when it comes to investing.
A colleague recently described life today as “a fight against impulsivity.” Something’s tugging at you all day. The news cycle. Social media. Apps that make you feel like you’re going to be left behind if you don’t act immediately…
The patient trading version of quitting your job isn’t storming out of the office on a contentious Monday morning. It’s lining up your next move first, setting yourself up for the long term instead of reacting to the short term. The more flexible you are, the more options you have. And the more options you have, the better the outcome for you…
Patient trading says: Slow down. Understand your options. Don’t forfeit the full value of something because you couldn’t stand the discomfort of waiting.
Patient trading is another way of saying: Be a long-term investor in everything. Your career, your relationships, your health, your home. Zoom out. See the full picture and your place in it. Let the situation work for you rather than fighting it.
The world wants you to react. It wants you to feel behind. And waiting is not the same as losing. The people who do best are often the ones who can sit still when everyone else is scrambling.
Stay calm, stay invested, and let markets work for you.”