Investing, Investing Basics

Mastering Patience: The Behavioural Edge of Successful Investors

by Max Kirouac CFA® – Investment Counsellor, BMO Private Banking

Introduction: Why Does Behaviour Matter for Successful Investors?

The often overlooked key to investing isn’t just found in financial statements or market predictions – it’s in the investor’s behaviour. Patience and discipline can be your greatest allies in the financial markets, as emotional decisions are often the root of many costly mistakes for investors. It is my hope that all investors can become successful investors by understanding and conquering the behavioural elements.

Behavioural Edge of Successful Investors

The NHL is in good hands with its current slate of young stars. A handful of games into his rookie season and Connor Bedard already looks like he’ll be one of the faces of the league for years to come. I’ve been following his debut pretty closely and he’s an interesting case study in excellence. Bedard certainly isn’t big and he isn’t particularly fast (by NHL standards), but his game has translated well to the pro level.

While undoubtedly talented, what seems to set him apart from even the world’s most elite players is a preternatural sense of patience. I kept thinking he was holding onto the puck for too long, only to see the play develop exactly how he drew it up in his head. He is always content to wait for his opening.

With talent as a prerequisite, his primary competitive advantage is behavioural.

How Does a Behavioural Edge Apply to Investing?

The beauty of a behavioural edge in any discipline, from hockey to investing, is that it has nothing to do with physical stature, nascent ability, or intelligence. Rather, it’s a self-control mechanism that can be trained and refined.

When the markets are falling, we look for reasons why and compound those reasons into the future. This makes sense – we feel vulnerable when we see account balances decline, and taking action is a self-preservation instinct. The desire to make some change, any change, can be overpowering. Success in investing is built on resisting those urges.

Elimination of wasted movement and energy is a guiding tenet of biology. Crocodiles have thrived for tens of millions of years by exerting themselves precisely when necessary and otherwise letting the world pass by. Expert fighters employ a similar strategy, conserving energy to unleash it at the right time. Compare this to a street fight that spills out of a bar where combatants flail madly and are as likely to hit themselves as anyone else.

I have a lot of respect for the difficulty of being a long-term investor. It’s a big, complicated world. You can find reasons to panic if you go looking for them. This is one of the reasons I lean heavily on historical precedent. What is happening now that wasn’t happening in a different market environment? Geopolitics is almost never the answer. There are violent conflicts now as there have been at every other point in human history. Tension between China and Taiwan is not a new phenomenon, nor is questionable conduct from elected officials. It’s often a classic case of mistaking correlation for causation. Just asking yourself why certain events would be impacting the markets (without extrapolating those events into an apocalyptic anomaly) can do a lot do dispel your fear of them.

It’s also next to impossible to avoid being inundated with negative information these days. I shudder every time an Apple News headline pops up on my phone, wondering what natural disaster has struck or which celebrity has died. We are more informed than ever of the bad things that happen in the world, and this leads us to believe that more bad things are happening. Newscasters are dignified. They wear nice clothes and expertly crafted grave expressions. If they tell us the world is bad, we are inclined to believe them. The thought process goes that to be optimistic is to be naïve, and to be pessimistic is to be informed. Meanwhile the big, impactful metrics are ignored: global poverty rates have collapsed over the last century and the average Canadian enjoys a quality of life that would make kings and queens from the Middle Ages jealous.

Napoleon famously defined a military genius as the man who can do the average thing when everyone else around him is losing his mind. A more modern visionary, Captain Jack Sparrow, made a similarly astute observation: The problem isn’t the problem, the problem is your attitude about the problem. You can’t control everything that happens in the world, but you can control how you react to it.

For more articles similar to this one (Mastering Patience: The Behavioural Edge in Smart Investing) by Max Kirouac, click here.

Opinions are those of the author and may not reflect those of BMO Private Investment Counsel Inc., and are not intended to provide investment, tax, accounting or legal advice. The information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the author nor BMO Private Investment Counsel Inc. shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance. BMO Private Investment Counsel Inc. is a wholly-owned subsidiary of Bank of Montreal.

Max Kirouac
About Max Kirouac

Max Kirouac, CFA®, is an Investment Counsellor at BMO Private Banking in Winnipeg, Manitoba. If you would like to discuss this article more with Max, connect with him on LinkedIn.

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