I like to read through the back issues of Value Investor Insight as part of my search strategy. It is a good way to become familiar with a lot of different companies. There is also tons of solid investing wisdom to be had, as Whitney Tilson and his partners hand-pick the best modern practitioners of value investing in all its various forms.
One profile that recently caught my eye was that of Pacifica Capital which is run by Steve Leonard. Steve is a sharp guy who made a fortune in real estate by adroitly putting the lessons of Mr. Market to work in the real estate market. Then, in the late 90’s he formed a money management firm and built a strong performance record.
Steve is a focused value investor who concentrates his capital in stocks of good businesses with strong management. He is patient enough to buy them at attractive prices and then hold on as they appreciate, all of which brings me to the point of this article: patience.
Steve has a great quote on Pacifica’s website:
“With individual stocks, 10% of the time they’re cheap enough to buy, 10% of the time they’re expensive enough to sell, and the rest of the time you should just hold them if you own them and avoid them if you don’t.”
Sorry if this is not new information. But this series is about what it takes to beat the market – not being novel – and patience is about as fundamental to that objective as anything I can think of. All the great ones agree on this point and many are quick to point out that most investors – no matter how much they pay lip service to it – do not possess enough of it.
Buffett talks about investors inability to do nothing and just sit still. In distilling the essence of his investing discipline, he sings the praise of “lethargy, bordering on sloth.”
Why not double or triple your investment discipline (even if it cannot be measured with anything approaching precision)? Resolve to wait for the S&P 500 to be off by at least 20% before making a purchase. Or insist that a stock be on the new low list before loading up. Or wait for those magical times when the yield on normalized current earnings exceeds 15%. Or wait until your relatives or friends are asking if it would not be prudent to get completely out of the stock market, or – notwithstanding your esteem for the wisdom of the Mr. Market parable – you cannot help feeling a little queasy about your own equity holdings.
However you get there, limit your buying to the 10% of the time – per Steve Leonard – when stocks are really cheap. Otherwise, just sit still and prepare.