Russell Harrop, Head of International Equities
Yesterday was a momentous day, as our nearly eight-year-old daughter moved to the ‘bronze’ swimming class. It’s taken five extremely long years to get here, but it’s not for want of trying. Starting off swimming once a week for half an hour in a two-to-one class they both progressed well. But then, by the time we had configured their music lessons all the swimming slots had been snaffled up. So, they missed out on swimming for a whole year. Mercifully, the following year the stars aligned, and we booked them back into swimming, only for half the classes to be cancelled because of ‘temperature issues’ with the pool.
Eventually the mysteriously impossible-to-book swimming lessons at the local leisure centre, finally had some availability. With swimming twice weekly, both children were well on their way to swimming proficiency when the pandemic hit. Another year without swimming and they were back on swimming square one for the third time. Yet now (another year later), they can both swim. Hallelujah!
We had to be patient, but it paid off in the end.
That brings me to investing. There’s a lot of patience required when it comes to investing. Firstly, for really good returns you need to let compounding work its magic, and that takes time. A 7% annual return means in thirty years you’ll have made 7x your original investment, a 10% return means you’ll have made a whopping 17x your original investment.
Secondly, study after study shows excess trading to be the destroyer of returns; often the best, and hardest, thing to do, is to do nothing. Mistakes are inevitable, and statistically part and parcel of investing. Trying to reduce these in the first instance, deal with them quickly in the second, whilst ensuring that you don’t throw the baby out with the bath water (as plenty of short-term noise looks like mistakes), is paramount.
Patience for investing
The attributes of patience are essential to our investment process; not rushing research, accepting you will miss out from time to time, and not having representatives in every little market sector to make sure you ‘cover’ the index. If you want index returns, buy the index. And what is an index, anyway, except all the history to make it what it is today? It is the future we care about when investing clients’ money. Instead of concentrating on the index, we focus on a smaller number of high-quality companies with long-term compounding characteristics and make it a privilege for them to be on our credited list. This does mean that sometimes not much happens. If the businesses are doing well and we haven’t found any better companies (by better we mean more potential return for less risk), then we are inclined to stick with what we already have. This process requires patience, and to overcome the natural human desire to ‘do something’. For us, that ‘doing’ is continually looking for other companies that might have the ‘right stuff’, rather than trading in and out of stocks simply to look busy.
It really does pay to be patient; whether it means waiting for compounding to work its magic, or your children learning to swim. No matter how exhausting and frustrating both can be, they are worth the wait.
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