Why patience really is a virtue for serious investors

November, 14/2020 - 08:05

One of the most striking contrasts is how patient the Vietnamese have been as a people in their struggle towards independence and prosperity, versus how they tend to behave as individual investors now.

 

 

Brian Spence *

Although I’ve been living in Việt Nam for several years now, it still fascinates me to compare attitudes to wealth in my old and adopted homelands, and how people’s approach to life and money are often at odds in both.

One of the most striking contrasts is how patient the Vietnamese have been as a people in their struggle towards independence and prosperity, versus how they tend to behave as individual investors now. Perhaps an element of impatience to grow capital is understandable given the former; you could also say that it feeds into the dynamism that has fuelled the country’s explosive growth. Yet like so many investor behaviours you see here (and it must be said the world over), it is very often self-defeating.

As a career financial advisor, I take my fiduciary duty incredibly seriously. And, acting solely in my clients’ best interests sometimes means telling truths that investors may not want to hear. Investment time-horizon is therefore an area the S&P Investments team put a lot of effort into educating our clients about. It really is the key to success.

The trouble is, many people here – and elsewhere – still regard investing in the stock market as taking what Westerners colloquially call a “punt”, or a bet. They hear of a trend, or a company with rising fortunes, and believe they can dip in and out of the market in very short order, pocketing excellent returns as they go. Sometimes they do, but they get badly burnt more often than you might hear.

No easy wins

When stock markets rise 4-5 per cent in a single day (as many did off the back of COVID-19 vaccine news) the myth of quick and easy returns is reinforced. Yet timing the markets correctly with consistency is virtually impossible. The vagaries of the markets mean that even the brightest investment brains have long abandoned that approach. If it were that easy, we’d all be rich!

What constitutes an appropriate investment time-horizon is a mutable concept and I suspect it will be a while before attitudes here and in the West are anywhere near aligned. For the present, the difference is stark. Whereas in the UK, short-term investing might mean holding a security for a year or a little under; here, we’d be talking a matter of weeks, if not days.

As we grow our client base in Việt Nam, stretching investors’ conception of long-term investing from a few months to several years can be a struggle, but it is our duty to help them make that leap. The fact is, to really grow your capital, the minimum timescale for stock market investment should be around five years. That way you can be far more certain the ups and downs of the market will be evened out.

Take a stock market chart for a week (or a day) and you will see clearly how violent volatility can be. Zoom out to look over several years and you can expect to see a far more pleasing picture of sustained upward growth. That change of perspective is key.

Buzz or really building wealth?

Speculating (for which, read gambling) on the stock market can undoubtedly create a buzz when it goes right. But the risk of losses, not to mention the stress involved, can make for a very unpleasant experience on the downside. Then there are the brokerage costs of constantly chopping and changing your holdings. It is very little appreciated how much these can eat into returns.

Empathy is something the best advisors have in abundance. I know I understand how difficult it can be to resist a “hot tip” and to content yourself with modest returns quietly ticking away over the years when others boast of stellar ones in short order. We need to think deeper, however.

Here again, I’d recommend a step back. Although people certainly don’t forget painful losses, they don’t usually tend to speak of them. When I hear of someone making a killing in the market it often takes some discipline not to ask them what their net returns are to date, and if this apparently easy win came along with commensurate defeats.

The absolute requirement for investment discipline is actually my point here – and why the University of Toronto has found that two-thirds of wealthy people globally only act on professional financial advice. Even if they have the skills, knowledge and time to invest independently, they are wise enough to know the value of having a sounding board, a protector against counterproductive traits, or as I like to think of myself, a wealth coach. Investing time in a real relationship and sticking to a carefully thought-out plan is what makes proper wealth management work – for both sides.

There is a saying that, “You can doubt what the rich say, but not what they do”. And what they do is work with trusted advisors on a long-term view, not try to make as much money in as short a time as possible. When it comes to investing, patience really is a virtue.

* Brian Spence is managing partner of S&P Investments. He has over 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@sandpinvestments.com.

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