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Why patience is key for investment returns

One of the funny things about investing is how long you have to wait before anything good happens.

If you have to wait more than an hour at a restaurant for your meal to come out you’re probably going to start getting annoyed.

If you have to wait more than a week for your car at the mechanic you’re going to feel impatient.

Waiting nine months for a baby to come out can seem like a lifetime for expectant parents.

With all of the above situations in mind, I think it’s amusing that investors need to look at a minimum timeframe of three to five years for potential good investment returns. Can you imagine waiting three years for a baby or your car to be repaired?

There’s a reason why patience is described as a virtue. It takes time for a business to grow its profit. We don’t get to look at a business’ financials every day to see how the year to date figures are looking. We have to wait for the quarterly or half-yearly reports at a minimum to see if we’re right.

One of the best quotes I’ve seen about the share market is from Benjamin Graham: “In the short run the market is a voting machine but in the long run it is a weighing machine.” This means that, over time, a strong-performing business’ share price will increase. You just need to ignore the market noise.

However, it can take years to be proven right. There are long-term investors in MNF Group Ltd (ASX: MNF) and Ramsay Health Care Limited (ASX: RHC) that may have to wait years before the share market agrees with the long-term investment thesis.

Imagine if an investor had sold out of Amazon in the tech crash in 1999, or if an investor was scared off Visa Inc. during the GFC even though there was a steady increase in card payments (and there still is).

Foolish takeaway

If you invest in a share with a view about where the business will be in five years’ time, then it doesn’t matter what happens in year one or year three, as long as the long-term investment thesis plays out. But, you have to be patient if the share price isn’t doing much – it won’t go up suddenly just because you bought it.

These top stocks could deliver wonderful returns over the next decade for a patient investor.

Top 3 ASX Blue Chips To Buy In 2018

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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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