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When patience is not a virtue


Published: 04/30/2013

by Warren Mackenzie

There is an old saying attributed to philosopher John Dewey, “Patience is a virtue, possess it if you can, seldom
found in woman, never found in man.”


In the investing world, patient investors usually do better than impatient investors. Sometimes it’s because it may take
a long time for a stock to realize its full potential. Another reason is that about half the total return from stocks comes

from dividends and it takes patience to wait for dividend income.


Impatient investors usually act emotionally and acting on emotions is the sure path to underperformance. Emotional

and impatient investors follow the herd and the herd usually heads in the wrong direction. Impatient investors also

waste money in trading costs and they lose more because they take higher risks in their desire to make money faster.


However, it’s not always good to be patient. Patience, when waiting for good quality stocks to realize their full
potential, is usually a good strategy. But patience, in terms of putting up with incompetence, is always a bad strategy.


Is your advisor competent? In the short term, it’s hard to know for sure, but some telltale signs should never be
ignored. When bad signs are evident, it is not the time for patience. Inaction when action is required is procrastination,

which is almost always a bad thing.


When do you take action and when do you exercise patience?


Be patient when:

•          You receive performance information and you know that your portfolio has performed
as well as the benchmark.

•          Long-term performance is solid, even if there has been underperformance during the past
few quarters.

•          You consistently earn the rate of return necessary to achieve your financial goals.

•          You are well-diversified and are addressing all risks (stock market risk, inflation
risk, interest rate risk, currency risk, global economic upset risks, etc.).


Be very impatient when:

•          You’re not getting the performancereporting necessary to know how you are doing.

•          There is no evidence of an overall investment strategy or process. (The investment
process is the most important thing, because you can control the investment
process, but you have little control over investment products.)

•          Your portfolio is too complicated to manage effectively.

•          Your advisor recommends more than half a dozen changes each year.

•          Your advisor recommends leverage to boost returns, but has not explained the
downside risk in your portfolio.

•          If you have more than 10 mutual funds. (With more than 10 mutual funds, you are
over-diversified and you will always underperform because of the hidden fees.)


If you have patience with advisors who are not performing, you should also plan to be patient when it comes to retirement.
Long-term underperformance will either mean you will need to work many years longer, or you will spend less time in retirement.


To be successful, investors have to take responsibility for their accounts. That means making decisions, and doing
nothing when something should be done is a decision to procrastinate. And procrastinating is often the most costly

investment decision of all.  


Warren MacKenzie is the founder of Weigh House Investor Services in Toronto.

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