Renowned investor Philip Fisher once said – “The stock market is filled with individuals who know the price of everything, but the value of nothing.”
Fisher, the author of the seminal investment book “Common Stocks and Uncommon Profits”, is well known for his preference to “buy and hold” stocks for the long run.
Based on my observation of the investors around me, I have to agree with him.
Too many stock buyers talk solely about share prices in their eagerness to realise a profit.
Yet, too few bother to take the time to understand why share prices may or may not rise.
And in case you’re wondering, it is the business behind the stock that determines the long-term direction share prices.
A get-rich-quick mindset
Behind the relentless focus on share prices is the insatiable desire to become rich in the shortest time possible.
These impatient stock buyers come in with the wrong mindset, thinking that they can jump in and out of the stock market, and make a bundle before the end of the day or week.
Naturally, the focus is on where they think stock prices will be headed based on factors such as investor sentiment, interest rates, macroeconomic data, and economic policy…to list a few.
The problem with this approach is that no one can reliably predict the stock price movements in the short run.
Unexpected forces can influence the direction of share prices.
Most of the time, these factors are only known after the fact, thus making it an impossible task to guess the direction of stock prices in the short term..
Don’t mind me, but I will term this behaviour as “impatient capital” because it represents a group of stock buyers who do not have the patience to sit still and get rich slowly.
To these buyers, static capital is a tragedy and needs to be constantly shifted around to the hottest trend of the day or be recycled quickly to chase the next big opportunity.
Unfortunately, in the race to get rich quickly, the only thing running out is their money.
A fool’s game
Stock prices are unpredictable.
Hence, the idea of making quick trades to profit off the stock market is flawed.
While you may score some wins from time to time, the heavier frictional costs of trading builds up and steadily erodes your capital.
Therefore, it is no surprise when the impatient capital will eventually be whittling away like sandpaper on soft wood. Before you know it, your money will be gone before the next profitable trade arrives.
Time is needed for good things to happen
Some things take time.
You can’t just shortcut your way to success without a heavy dose of luck.
As Warren Buffett said back in 1985 “You can’t produce a baby in a month by getting nine women pregnant”.
Along the same lines, a great business needs time to build factories, launch a new product, or acquire another business to grow.
Higher revenue and profits take time to materialise and show a positive impact on the financials.
If you understand this process, you would naturally take a longer-term view of the business or in other words, become “patient capital”.
After all, good things come to those who wait.
A solid business can continue to grow through different economic cycles and produce better profits and cash flows.
And as the business improves and becomes more valuable, its share price should also rise in tandem.
Need an example?
Apple (NASDAQ: AAPL) saw its share price rise for over a decade, backed by business growth.
For context, the iPhone maker’s revenue and net profit were US$260.2 billion and US$55.3 billion, respectively, for the fiscal year 2019 (FY2019).
Fast forward four years and Apple’s revenue and net profit have risen to US$383.3 billion and US$97 billion for FY2023, respectively (note: Apple has a 30 September year-end).
If we measure the stock price performance over the past five years, Apple shares have soared from US$44.74 back in May 2019 to US$186.88 today for a more than fourfold increase.
As a cherry on top, from 2019 to 2024, Apple also increased its quarterly dividend from US$0.1925 to US$0.25 per share.
Get Smart: Patience is a virtue
Of course, patient capital alone is not sufficient to enjoy a great long-term return.
Not every stock deserves your capital.
The companies you invest in need to demonstrate robust characteristics that will allow it to continue growing.
Attributes to look for include a strong competitive moat, a long track record, and a competent management team.
That’s just for starters.
Patient investment in the right stocks, such as the case of Apple, fuels significant growth over time, paving the way for a joyful retirement.
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Disclosure: Royston Yang owns shares of Apple.
