James Montier On Patience

I was re-reading the "Postcards from the edge" by James Montier, as I was revisiting the valuation approach used by him. I came to a chapter on patience, from which I wanted to share a couple of paragraphs:

The third aspect of the triumvirate of investment principles to which I try to adhere to is to be patient. This flows naturally from the value approach. As Ben Graham said "undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by overenthusiasm or artificial stimulants."

One of the curses of following a value approach is that in general I will be too early (both to sell and buy). An example was brought home to me the other day as I followed a link on a webpage to a recommended article that argued hedge funds were enjoying something akin to a bubble. Imagine my disappointment when the link opened a note I wrote in 2004!

Indeed, looking back over my past work being too early is a near constant theme - calling Thailand the next Mexico in 1995, arguing that the equity market was enjoying one last hurrah in 1997 (before losing my head in the mania of the tech bubble), pointing out the bubble characteristics of both the US housing market and commodities in 2005, calling the mining sector a bubble in 2006. Given the propensity for premature warnings I guess it might be better if I wrote notes, and then sat on them for a couple of years before I published them. The alternative solution is, of course, just to be patient.

Sadly patience seems in exceptionally short supply amongst most investors these days. As Keynes noted "compared with their predecessors, modern investors concentrate too much on annual, quarterly or even monthly, valuations of what they hold".

The impatience of some investors can even be a signal that we are nearing the end of the last euphoric stages of a bubble. Hate mail is always welcome from my perspective.

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