The Warren Buffett Way, + Website, 3rd Edition

Chapter 7

The Value of Patience

In his epic masterpiece War and Peace, Leo Tolstoy made this profound observation: “The strongest of all warriors are these two—time and patience.” He of course was speaking from a military perspective, but the idea also brilliantly applies to economics, and it has great value to those who would deepen their understanding of capital markets.

All market activity lies on a time continuum. Moving from left to right, we observe buy-sell decisions that occur in microseconds, minutes, hours, days, weeks, months, years, and decades. Although it is unclear exactly where the demarcation line is located, it is generally agreed that activity on the left side (shorter time frame) is more likely to be speculation and activity on the right side (longer times) is considered investing. Warren Buffett, it probably goes without saying, sits comfortably on the right—quietly patient over the long term.

This prompts the question: Why are so many people frantically scrabbling on the far left, trying to make as much money as fast as possible? Is it greed? Is it a mistaken belief that they can predict changes in market psychology? Or could it be that they have lost faith in the possibility of achieving positive long-term investment returns after experiencing two bear markets and a financial crisis over the past decade? Truth be known, the answer to all three questions is yes. Although each is problematic, it is the last observation, a lack of confidence in long-term investing, ...