The most important skill to have in investing is not financial modeling, technical analysis, or portfolio management. The most important skill hands down is learning to be patient.
This is because once you identify a good investment opportunity the longer you hold your position the greater your chance of making money becomes. Further, by learning how to be patient you will lower your overall risk as you will learn how to remove emotion from investing.
There are only 3 professional tips to being patient in the stock market. First, use advanced order placements to manage risk and loss. Second, learning to pick investments for their future value. Three, learning and understanding the value of compounding returns.
If you understand each of these 3 tips then you will instantly increase your odds of making money over the long run. Here at ChronoHistoria I teach people how to generate above normal market returns (alpha). I publish articles that go over individual stock research, tips/tricks, and interesting stock methodologies. Feel free to sign up for the free newsletter to remain up to date on all things investing.
Without wasting any time, let’s jump right into the article; the 3 professional tips to being patient in the stock market.
Why Is Patience The Most Important Investing Skill?
First, we need to discuss why you need to cultivate a patient mindset in investing or trading. It all comes down to removing emotion and time from your investing brain.
Professional investors and traders think in the long term. They will ask themselves “how will this trade or investment impact my portfolio next year, next month, or in the next decade?”
When you start out on your investment journey most people will only think about the next couple days. They want to grow their wealth now so that they can see the fruits of their investment labors. For a majority of traders/investors who do this they will lose all of their money.
This is because the market is stacked like a casino. On one end we have those who invest for the near term, these are the gamblers who can’t see past the immediate now. Then we have the casino, these are the investors/traders who can see the value of an asset/stock in the future. That future could be tomorrow, in a month, or a year.
In fact a majority of traders and investors who are not patient lose nearly all of their money. A 2009 study performed on all investors/traders in Taiwan discovered that those who lack patience in the market lose time and time again. (Source)
Professional investors and traders cultivate this forward thinking mindset over countless years of practicing patience in the market. Most of them have lost thousands of dollars being the investors/traders who only think of the now only to transition to cultivating patience and finally becoming professionals.
As such, I am here to show you the 3 professional tips on how to become that professional and patient investor/trader in the stock market. Just by practicing patience you will instantly save yourself money and start performing better in the stock market.
Stock Market Patience Tip 1: Use Advanced Orders to Prevent Large Losses
Many retail investors/traders don’t know that there are more order types than just the buy and sell. In fact there are 8 advanced order types that all perform different things.
One of the easiest to perform is the stop loss order (STP). A stop loss order will instantly liquidate your position once the price hits a certain value. What this means is that you can lock in your downside and walk away from the computer knowing you’re protected.
Here is a graph demonstrating how the process works.
In the above image you bought the SPY ETF and instantly set a stop loss for $430. If the SPY at any time fell below $430 you instantly sold the position.
Now you know that you’re protected from any sudden downfall in your position. You can come back in 3 years to liquidate your position for a massive ROI.
Just by understanding the concept behind the stop loss order you will start to practice patience in the stock market. This is because you start to think about what’s going to happen in the future. If your stock fails you will only lose a fixed percentage such as 5% of the total value.
However you can walk away from this investment now. Forget about it and check up on it in the future when it’s worth significantly more. Congratulations, just by placing an advanced order you are now well on your way to being more patient in the stock market.
I wrote up an entire article on the other 7 advanced order types. I highly recommend you check it out if you want to add to your investing toolbox. This is because each advanced order is used for a particular investing methodology. Learning about them only opens your portfolio up to making more money. (Click here for article)
Stock Market Patience Tip 2: Learn To Pick Investments For Their Future Value
Before you open a position in any investment ask yourself “where will this investment be by X date and why?” It does not matter the timeline it only matters that you identified the timeline that you will be investing for.
Don’t buy a stock because you think the value will go up, instead buy it because you think that by a certain date the value will go up.
By doing this you are going to instantly increase your odds of success in investing. This is because in order to identify where an investment will be by a certain date forces you to identify catalysts and form an investment thesis.
Further, investing in this manner gives you a timeline that you will stick to. No longer are you investing off the price of an asset/stock but rather you are investing on the future value and an expected timeline.
By forcing yourself to think like this you will instantly start to become more patient in the stock market. When I open a position I always find out where I think the asset will be by a certain date. That way even if the stock/asset falls in value I feel comfortable that my research is correct.
The trick to do this however is learning how to pick the right stock for its future value. I wrote up an entire article on the three steps to finding winning picks in the stock market. If you’re having trouble with this I highly recommend you give it a read. (For Article Click Here)
Investing like this over time removes emotion from your investment choices. No longer will you panic buy or sell. Now you are a seasoned investor who understands how to weather the ups and downs of the market.
Stock Market Patience Tip 3:
The power of compounding returns can not be understated. Patience pays off when factoring in compounding returns. This is because compounding returns lowers your overall exposure to risk while also increasing your total ROI every year.
There really is no better way to practice patience in the market than by seeing a portfolio explode in value because of the effect of compounding returns. There is a great article in the Journal of Economics and Business that goes over just how powerful compounding returns across a variety of portfolios. (Article here)
In fact here is a graph demonstrating the compounding power of $100,000 invested and left to compound at a 7% rate over 30 years.
At the end of that 30 year investment period your $100,000 investment is returning a staggering 78% return per year with almost zero risk. Sure it took 30 years to get there but there is no other investment in the world that can return that level while having almost zero risk.
The good news is that you can start taking advantage of compounding returns much, much sooner than 30 years. For some investments it only takes a month to start noticing the effects of compounding returns.
Large index funds that track the S&P 500 have recently been seeing a compounding rate of return of 1.5% per month. That means that just by treating these large index funds as glorified savings accounts you are getting an average return of 1.5% per month! Compare that to a normal savings account of 2% per year. (Source for ROI date)
What this means is that just by understanding the power of compounding returns you are forcing yourself to become more patient in the market. You’re going to have to force yourself to be patient to see those massive returns and best of all, lower risk.
There you have it, the 3 professional tips to being patient in the stock market. There really is no better skill than patience when it comes to investing. Trying to make a million dollars in 3 days when you only have $1,000 is going to blow up in your face.
However, with the investing skill of patience you can eventually make that dream come true of making 1 million in the stock market. You only need to be patient when it comes to the stock market and you will become successful.
Here at Chronohistoria I teach people how to generate above normal returns in the market (alpha). I routinely publish articles on stock research and tips/tricks. Feel free to sign up for the free newsletter to remain up to date on everything.
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Until next time, I wish you the best of luck in your investing journey.