Patience and Value Investing

If value determination of a stock is the soul of Investing, then Patience is the heart, which will keep the "Investor" beating. Pateince can get you a multi bagger or convert that multi-bagger into a multi-loser. Warren Buffet has been quoted in the book "How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World's Greatest Value Investor" by Timothy Vick, giving an example of the baseball player Ted Williams, having the seventh highest batting average of all time and the last man to average more than 0.4 in an entire season. Ted William says,

“To be a good hitter, you’ve got to get a good ball to hit.”

Along the same lines, to get a multi-bagger you should patiently wait for the right stock, at the correct value to make a buy and hope to make money out of it. Te patience part does not end at buying the right stock. The level at which you sell is also very important. Thus, if your stock is not doing well, you should still persist with it if you think you really have picked a value company, for in the coming time, the market will definitely recognize the worth of the company.

Sharing my own experience, I'll give you an example. I started investing at the most inopportune time for an Investor. I started when I had just joined Engineering College and after maintaining a Dummy Portfolio for an year (2006-07 to 2007-08). I had achieved a return of over 50% in the Dummy, and hence I decided to get into the real thing. The market (Bombay Stock Exchange) was at its peak of 21000. I purchased some shares of IndusInd Bank, that time trading at 122. They had fallen from a high of 135. In the last six months, they had traded between 100 and 135. Then Baer Stearns and Lehman Bros collapsed. The great fall started. Sensex fell from 21000 to 9000. IndusInd did the same from 122 to 40. I panicked. It seemed a bottomless pit and I was still in my infancy as far as the markets were concerned. I sold as soon as the stock reached 45. Today, the market has not crossed 21000, but IndusInd trades at 270.

This was selling while trying to stop your losses (only when the company is doing well fundamentally). But you may sell the stock prematurely as well. I had purchased Bank of Baroda at Rs 215. Within 4 months, It was up at Rs 300. With a gain of around 40% in four weeks, I felt it had increased a lot. I booked a profit. Now, the company at that level was still trading at PE multiple of around 5 to 6. Moreover, its profits were growing. The stock had not fully realized its potential. Today the stock trades at Rs 887 (After having touched Rs 1000).

Thus, Patience should be used, together with Value investing if you want to succeed.