A powerful technique for getting the most from stocks and shares

Stocks and shares can sometimes be frustrating when I keep looking at them.

But when I go away to romp in the hills or swim in foreign seas on holiday, I’m often amazed that my portfolio makes progress without me.

And that just helps underline one of the key points about building wealth on the stock market — investments need time to mature. 

It takes time for businesses to grow and compound their earnings. And it takes time for the market to re-rate valuations higher to account for the improving prospects of an enterprise.

Inactivity can be king

So, it really should be no surprise to me that my stocks often do better without me. And without my constant fretting and meddling.

And the theme is something billionaire investor Warren Buffett has expressed several times as well.

He once said: “Wall Street makes its money on activity, investors make theirs on inactivity.”

And: “The stock market is designed to transfer money from the active to the patient.”

But there’s another phenomenon I’ve observed in my own investing. And it’s that nothing much seems to happen with my chosen stocks for ages.

I might have picked them with great care because of compelling value, growth and quality characteristics. But still they refuse to shift higher. Or, more likely, they tend to go down a bit in the first few weeks and months of holding.

But despite their slothfulness, the underlying businesses often keep making operational progress. So, value is building, right? And the answer is often, yes. But still those stubborn shares don’t seem to move higher – frustrating!

Waiting for fast change

One way of getting my head around this conundrum is to think of investing like growing a new tree in the garden. I’ll maybe plant a sapling and wait two or three years before detecting much growth at all.

But despite looking dormant, a new tree is really working hard to put down big and powerful roots to support its growth. Then, when it’s ready, it shoots rapidly higher.

I heard someone on the telly the other day making a useful observation. They said that change takes longer than we expect to happen, then change happens faster than we ever thought possible.

And relating those theories to stocks and businesses, there’s a good example expressed in the multi-year share price chart of Judges Scientific.

Early investors in the stock waited years for progress. But value kept building in the underlying business as it grew. Then, one day, the stock took off in a big way. And the wait was worthwhile for the company’s shareholders.

The risk for shareholders in any investment is of becoming disillusioned or impatient and selling out too soon because of a lack of stock progress.

But Buffett, for one, is used to holding with patience. And he expressed that by once saying: “We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.”

So, I reckon the most powerful technique for getting the most from stocks and shares is to apply patience.