Why Patience Is a Competitive Advantage in Investing
In the world of investing, Charlie Munger emphasizes that patience is key to success. He believes that many investors know they need to "find good opportunities and stick with them for the long term," but often lack the patience for patience, leading to investment failure. Munger points out that this problem stems from a gambling mentality—if you treat investing like a casino game, you will overemphasize short-term results and ignore long-term value. Instead, he advises investors to gamble less and invest more, because investing is about long-term returns, not immediate gains. Patience is not innate but can be cultivated. For a long-term investor, patience is crucial. The renowned long-term investor Warren E. Buffett advocates for safety first, not chasing short-term profits, but holding quality stocks for the long term. Investing is about patience—long-term investing, value investing, not prioritizing short-term gains. When good ideas emerge, how do we ensure they receive funding and nurturing from patient capital?
How to Understand Long-Term Investing
Patient capital is defined as long-term investing, but what exactly is long-term investing? The World Economic Forum (WEF) defines it as "an investor's desire to hold assets indefinitely and their ability to do so." This has evolved into "capital focused on long-term projects," meaning creating value over many years. Clearly, patient capital is closely related to long-term investing and value investing. However, achieving long-term investing is extremely difficult. Holding long-term investments not only means optimizing asset portfolios and selecting investment targets with potential and growth, but also faces severe macroeconomic challenges due to multiple macroeconomic factors such as economic cycles, industry cycles, and financial cycles. Furthermore, the capital base and sources of long-term investments must be considered.
Long-term investing is defined as investments exceeding five years, primarily encompassing private equity funds, pension funds, family offices, endowments, insurance companies, and sovereign wealth funds. Comparatively, these investments share certain commonalities: long-term holding, pursuit of stable returns, and high demands for asset yield and security. Therefore, these investors often focus on relatively stable, reliable, and safe investment targets, such as public bonds (government bonds), stocks in cutting-edge industries, and benchmark companies. In summary, patient capital is a form of long-term investing that does not prioritize short-term gains but rather focuses on projects or investment activities that emphasize long-term returns.
Patience is key to investment success!
Patience: The Cornerstone of Investing
In the world of investing, Charlie Munger emphasizes that patience is the key to success. He believes that many investors know they need to "find good opportunities and stick with them for the long term," but often lack the patience for patience, leading to investment failure. This problem stems from a gambling mentality—if you treat investing like a casino game, you will overemphasize short-term results and ignore long-term value. Conversely, he advises investors to gamble less and invest more, because investing pursues long-term returns, not immediate gains. Patience is not innate but can be trained.
Rationality: The Core Power of Investing
Rationality is the most important aspect of investing, surpassing knowledge, intelligence, or patience. "Rationality is being realistic." This means that rationality requires us to see the world as it truly is, rather than distorting reality through subjective filters. In reality, people are often irrational, easily seeing only what they want to see. To acquire and maintain rationality, Munger emphasizes the need for dedicated effort: you will actively train yourself to be rational if you care about it. This is like the Confucian moral responsibility—becoming a better person is essential to becoming a better investor. Rationality helps investors identify the truth: Markets are often full of illusions; for example, price volatility can be deceiving. The truth lies in the intrinsic value of a company. Munger cites Berkshire Hathaway's investment approach as an example: instead of following market trends, they delve into company value and buy when prices are undervalued. His famous quote, "If you are a better person, you are more likely to be a better investor," connects rationality with life philosophy. Investors need to improve their rationality through extensive reading and lifelong learning to avoid being misled by short-term noise.
The Cautious Use of Leverage
Leverage (borrowing money to invest) is used under specific conditions. Berkshire Hathaway uses insurance float (pre-paid premiums) as a safe leverage because it has no fixed repayment pressure. Leverage should only be used when there is a 100% certainty of the opportunity, but absolute certainty does not exist in reality.
In conclusion:
Investing is a journey of cognitive cultivation, and patience is its most precious quality. It doesn't eliminate market volatility, but it gives investors the wisdom and courage to navigate cycles. True investment wisdom lies in distinguishing between essence and appearance, and maintaining the ability to think independently amidst the noise. Wealth always flows to where understanding aligns, and patience is the bridge connecting understanding and wealth.
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