Waiting for Patience
Patience is a theme I often write about here on this blog… mainly because I tend to write a lot about investing. As we all know, investing is one of those activities in life that requires large amounts of patience in order to be really successful at it.
Here’s the thing though — I’m not an inherently patient person. Patience does not come to me naturally. I’m actually pretty bad at waiting for things in general. I won’t stand in line to get a table at a restaurant anymore. I hate long waits to get to a checker at the grocery store. When my kids take too long on the toilet, it’s agony waiting around for them.
I absolutely detest waiting in traffic too! So much so that I simply avoid doing stuff during commuting times now.
Yes, it’s very possible Financial Independence has completely ruined my ability to wait around and stand in lines. Life is so much more flexible now, that I can simply structure things so I don’t have to wait in lines anymore.
Really though, I’m bad at being patient.
The problem is, some things can’t be done quickly. They take time and plenty of patience. Like investing. Or, building-up enough wealth to actually reach financial independence. That takes a TON of patience!
Reaching FI is a extremely slow process of earning money, saving, and then investing. Rinse and repeat. Doing that for 10-15 years can feel agonizingly slow at times. I call it The Road To FI. It’s a waiting game — a very long waiting game. Which I don’t happen to be terribly good at.
So how did I, a somewhat impatient person, manage to patiently compound enough money to reach Financial Independence?
Compounding Takes Time
First and foremost, I always try to remind myself that when I’m investing I’m really in it for the compounding. Not chasing the “waves” of the stock market.
When we first learn about compounding, we probably hear that story about a grain of rice doubling on a chess board every day. It’s a classic compounding story, but in the real world compounding takes tons of time.
For example, pretend a company you invested in can reinvest cash with a 12% return on capital. That’s a pretty good rate of return! Assuming they can do this fluidly and all proceeds can be reinvested at those same rates of return, that’s 8 years before the first doubling.
The real world is of course far more complicated than a simple 12% ROC. Most of us invest in large companies that are spending billions of dollars trying to invest excess cash from existing assets into new businesses, that may or may not work out.
There’s a great lesson in how this works in the real world being played-out right now with Disney — Take Disney+, the new streaming service. Disney has been losing cable subscribers for years, and they’re attempting to replace those lost customers with new streaming service customers.
At $7 a month this new service has rock-bottom pricing to attract new subscribers. The new service will likely generate losses for Disney investors for years…. I’ve seen estimates as high as $11 billion dollars in losses before it turns a profit!
If you’re keeping close track of the numbers, that is NOT a positive ROC.
Will the new streaming service eventually turn out to be as good for investors as the existing cable business? Will the billions deployed in the business ever earn a return for shareholders? Let alone compounding?
It’s really hard to say!
This is the nature of compounding in the real world. It’s complicated and messy. There’s lots of guesswork that has large companies like Disney (DIS) making several big bets on the future. Compounding is NOT just simple interest in a bank account! Old businesses in decline tend to generate a lot of cash flow, but these grey-hairs of the business world also have a very hard time expanding (i.e. there little possibility of compounding). New businesses tend to have lots of room for growth, but are frequently unprofitable and speculative.
At the end of the day, it’s important to remember that compounding takes a lot of time, and you can’t expect quick compounded returns. Remind yourself to be patient!
Avoid The Impulse To Take Action
One of the biggest places I think investors screw-up is the impulse to take action. There’s this faulty belief that if we put on our hands on the steering wheel we’ll somehow do better than our previous investments. Or we’ll somehow do better than the market by ‘trading’.
This is something called “performance chasing”, and it trips up a lot of investors. They see an area of the market that’s doing really well — maybe it’s tech stocks, or credit cards, or any other hot sector. They then sell whatever perfectly good investment they already have, to chase so-called “better returns”.
Inevitably though, the outstanding performance that initially attracted investors will fail to materialize. Then, it’s back to chasing performance all over again.
If I’ve learned anything over the years it’s to not meddle with my investments. I try to invest and then take my hands off the wheel… for 10 or more years. That’s usually when I’ve received my biggest returns when investing — when I take my hands of the wheel and just let it compound.
If your investments aren’t the sort of thing you could safely ignore for 10 years, then you might be chasing performance. Instead, buy quality assets that you won’t mind holding for decades.
Practice Affordable Hobbies
Obviously once your money is invested, you’ll need to have something to pass the time while it compounds. Something that won’t cost an arm and a leg, or have you dipping into savings!
This is easier said than done!
Frequently, I see people falling into the trap of going out to dinner every weekend, having a few drinks, catching a concert, and maybe doing a little shopping. They do this every weekend, and all of it ends-up costing a pretty penny. Individually each of these activities might not cost a lot, but they do add-up.
Instead of keeping savings as something sacred to be protected, I see people blowing their savings on a weekend out-on-the-town or a one-week vacation to Bali. “I deserve a little fun” they tell themselves.
I just shake my head. No wonder they never reach financial independence!
I get it — At times it can seem like every activity in the world costs money! If you want to have any fun, you seemingly have to spend money! You can’t even move anymore without spending money!!
While there is definitely some truth to this modern hyperbole, there are still plenty of free activities in which you can happily fill your time. Walks in public parks, reading library books, hiking, hanging out with close friends, and so on. There are literally hundreds very low cost and very enjoyable activities with which a person can fill their time.
Me personally, I love reading, building stuff, and playing board games. All of my hobbies are activities that normally might cost a fair bit of cash, but with a little effort (and some creativity) I’ve managed to keep these hobbies extremely frugal.
This means my savings has been able to compound unmolested for decades. All because I chose to ditch expensive hobbies and keep frugal ones instead.
It Takes Practice To Be Patient
I’m not going to pretend for an instant here that I’m a guru of patience. I’m really not. I struggle with it sometimes. There’s probably hundreds of readers of this blog that happen to be more patient than I am.
But over the years I’ve learned that it pays be extremely patient. Like when it comes to investing — I learned to be patient because I’ve made some of the worst mistakes. I started out my investing career being terribly impatient — trading stocks, buying momentum, shorting stocks, and looking for ways to make profits quickly.
None of those crappy strategies worked out very well. Each of these failures became a learning lesson for me. I needed plenty of practice to learn patience.
Like anything worth being good at, patience takes practice too.
So as you sit down to the Thanksgiving table this week, remember to practice that patience. This time of year families frequently get together to celebrate the holiday’s, and this can be a major test of everyone’s patience.
If Uncle Joe decides he wants to argue politics over turkey, take a moment to utilize your patience. It’s not about trying to ‘be right’ or getting others to see the ‘correct’ side. Instead of hostility, try to create a family environment where everyone can speak their minds and feel respected. That’s all family members like Uncle Joe really want.
Remember, patience is all about the slow win. Even if it takes decades.
[Image Credit: Flickr1, Flickr2, Wikipedia]
7 thoughts on “Waiting for Patience”
I appreciate reading your posts.
Actually you pointed my attention to TD Ameritrade Holding with your investment ideas in October.
I bougth them 14 days ago. Today I sold my shares again with nearly 30% plus.
I did this because I wanted to invest in TD Ameritrade and not in Charles Schwab. I don’t know how the merger will affect my investment. Therefor I decided to take the profit and wait how things develop.
To make a long story short: I totally agree with you that time and patience are the key factors for financial independence but you cannot only rely on fate. You still have to take care of your investments and take the steering wheel in case things evolve into an unintended direction.
I do not know if I made the right decision today but I was not feeling comfortable anymore and therefor had to make a decision to stay in the drivers seat.
Best wisches from Germany
You may very well be right about the TD Ameritrade / Schwab combination. On the surface, it looks like Schwab is getting a great deal. But their customers seem very different to me.
There’s also another view that the brokerage houses in the states are consolidating because it’s now a high-volume low-margin model now. Only the big survive. In 10 years there might be only 3 or 4 big players left (Fidelity, Vanguard, Schwab). In other words, a oligopoly.
Or, the U.S. government could block the merger on anti-trust grounds. It’s possible.
I wish I could predict the future, but I really can’t. Change is always hard to predict, so your guess is as good as mine!
I’m not an overly patient person either so just like you, it takes years of practice to become a more patient person. Now we have kids, I must learn how to be more patient with them too. It’s a continuous learning process. 🙂
I know exactly what you mean Bob, the kids test my patience like no other! I really *hope* I’m becoming a more patient person over time!
I also am not patient but I do have a strong penchant for delayed gratification, as long as I know the gratification is almost assured. Happy Thanksgiving Tako!
Happy Thanksgiving Dave! I’m extremely thankful for your always intelligent and positive comments left here! Truly you are a friend of the blog!
I grinned as I read the beginning of this. I’m pretty impatient as well and was actually a little nervous about moving to Panama because, well, any kind of service moves at a much slower pace there. Luckily, I’ve been able to remind myself “what’s my hurry?” now that I’m “retired.”
But your post nails the personal finance side of things 100%. Over the past decade, I tweaked everything to the point I couldn’t do anything more. Everything was automated to take my check, move some into different savings accounts, different IRAs, etc. I couldn’t do anything more (or we wouldn’t have been able to eat!). So now it was just up to time to do the rest. That sucked!
You’re right though… if you just stay the course and don’t try to take any impulse action, you eventually get there, and probably far faster than you would otherwise.