Many investors are always looking for the key to making money on the share market. People who profess their knowledge about day trading and short-term patterns are not who you should be listening to in my opinion.
Over the course of all the history of stock exchanges, whether here or in the US, the value of the stock market has been steadily increasing over the decades. Dividends make those returns even greater.
However, the only reliable way to allow your investments to grow is with patience.
Share prices don't go upwards in straight lines until the business stops growing. Share prices are volatile, particularly businesses with a lower capitalisation. You can watch from the sidelines as your underlying investment steadily grows, perhaps adding more capital if the price is attractive.
Just look at Challenger Ltd (ASX: CGF) for example. Since the start of 2013 the share price has been steadily growing. Yet in February 2016 the share price dropped by 20% from its December 2015 high to $6.62. Since February 2016 it has been unstoppable, growing by 91% to $12.62.
It would have been easy to have become scared and sold during that dip. However, the long-term investment thesis about Challenger remained, so it would have been a bad move to sell just because of market movements.
Another example is REA Group Limited (ASX: REA) which reached over $65 last year, yet by November 2016 it had fallen to under $50. The power of the internet and REA Group's expansion plans are likely to power profits higher for years to come. Five months later the share price has recovered back to around $60.
Of course, the key to these examples is that the underlying business is growing. Warren Buffett himself has admitted he was too patient with some of his investments like UK supermarket Tesco before selling. Tesco has had a tough time growing profit, perhaps Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) shareholders will feel the same soon?
Foolish takeaway
If you fill your portfolio with long-term growth stories like Challenger, Invocare Limited (ASX: IVC) and Ramsay Health Care Limited (ASX: RHC) then you can sit back and watch the growth take care of itself.
Patience isn't the only thing we can learn from Warren Buffett, this trait of his portfolio could be key.
