“Genius is eternal patience” – Michelangelo
The virtue of patience is arguably one of the requisite qualities that segregates successful investors from the rest of the pack. Primary examples of patience reaping rewards have been evidenced by both Warren Buffet and George Soros; two of the most successful investors of modern times.
By focusing on investment into company’s fundamentals and the strength of their underlying operations, one can assess the growth of capital over a period of 10, 20 or 30 years. The informed decisions, that are a result of such analysis, enable investors to take a ‘big-picture’ approach to their accumulation strategy; ensuring that the viability and potential for capital appreciation are not impacted by high frequency market movements. This is the ethos of Warren Buffet, a man whose patience over 20-30 years rewarded him with significant dividends in his 50s, resulting in his vast investment portfolio.
Even during times of increased equity market volatility, historical data evidences the need to remain invested during both the peaks and troughs. The graph below demonstrates the market recovery of the Standard & Poor’s 500 Index (representing the 500 largest companies in the USA) if an investor bought the index at its peak in October 2007:
Fig. 1. S&P 500 Index Historical Performance since height of market before the Global Financial Crisis. Data Points; Pre-crash high = 1913.48 (Oct 2007); Market low = 893.87 (Feb 2009); Current Value = 3370.29 (Feb 2020) SOURCE = MACROTRENDS.NET
By evaluating the data in the graph above, we can determine that having invested into the S&P 500 index at its pre-crash peak (1913.48), an investor would have watched their investment fall by -53% within a period of 16 months. However, by maintaining one’s patience, the same holding returned to break-even again by October 2013. Continuing to hold the investment until February 2020 would have reaped further benefits, providing capital growth in excess of 76% since the original investment. Redeeming the position at any point on the way down (October 2007 – February 2009) would have negatively impacted the growth of the investment. Having extra capital to invest from February 2009 onwards would have exponentially increased the returns available.
Fig. 2. Represents the potential loss of capital accumulation by timing the market, instead of remaining invested. It shows the difference between returns of $100,000 invested into the MSCI World Index from 199-2017. As you will note, timing the market and missing the best performing days can impact the rate of return significantly:
Please note that past performance is not indicative of future performance. The value of an investment will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
This article is a general communication being provided for informational purpose only. It should not be relied upon as financial advice and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
© 2020 S&P Dow Jones Indices LLC. All rights reserved.
By Alex Konarski (RNF No: KAD300070330) Head of Planning – Legacy Wealth, with extensive work experience in investments, insurance and advice, and helps provide planning solutions to clients. Based in Singapore, Alex can be reached at Tel: +65 6536 0121
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