Why It Pays to Be a Patient Investor

Editor’s Note: Chris Mayer is the chief investment strategist at Bonner & Partners. In today’s guest essay, Chris explains why it takes patience to find bargains in the stock market…

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“Market corrections are like dental work, you dread it. You don’t want to get it, but you’re glad when it’s over and you feel better.”

—Michael Farr, money manager

Tip of the cap to my friends at Boyar Value Group for the Farr quote. It’s in their first-quarter letter, which includes some timely advice on handling market corrections.

Mark Boyar established Boyar Value Group in 1975. He is a wise investor for whom I have a great deal of respect. I keep telling him he should write a book. He’s got a head full of great investing stories that would make it an instant classic.

Until he does, we have his letters, which he writes with his son Jonathan.

In their latest, they admit they’ve trailed the major indices year-to-date because they’ve held a lot of cash. But short-term underperformance often seeds long-term outperformance.

They point to their experience in the run-up to the 2007–08 financial crisis, when they also carried a lot of cash. This allowed them to take advantage of the tremendous bargains on sale when the market broke.

“In 2007 and 2008, for example, CBS sold for under $10 per share and Saks Fifth Avenue for less than $2—and both went on to increase in value more than fivefold,” they write. “If we are fully invested during these periods, we can’t take advantage of such opportunities.”

Market corrections, then, are a boon to the patient investor. That’s when you really make a lot of money. But it requires patience. It’s often too hard for most investors to bear a seeming lack of progress. They want their stocks to go up now. And stay up. They’re like the kids in the famous marshmallow experiment that can’t wait five minutes to get two marshmallows.

The Boyars write about a couple of memorable examples of that value of patience:

In his book Water the Bamboo, Greg Bell used giant timber bamboo as a metaphor for success: even with regular watering, it makes no visible gains for its first three years of life—but then, suddenly, it sprouts 90 feet in two months. Bell’s college roommate, Mark Few, made 19 consecutive NCAA appearances with the Gonzaga Bulldogs before taking the team on its first trip to the finals. Patience is one of the most important elements of successful investing.

With the market suffering its worst day since Trump’s election, it’s a good time to remind you of these things. We haven’t had a 10% pullback in the market since February 2016:

Though infrequent, these are good times to put cash to work by buying quality companies when they go on sale. My lead analyst, Thompson Clark, and I were delighted with the market’s drop on Wednesday. “We need five more days like that,” I told him.

We get happy when prices fall because we know it’s during times like this when we’ll get great prices on businesses we want to own. This is the mindset of all great investors. It’s crucial to long-term success.

There is no guarantee, of course, that every correction results in a new high a short time later. There is always the chance of a longer, more drawn-out decline, such as when the market halved from 2007­–09. Even then, patience paid off as the market more than tripled off the March 2009 lows.

Take it from a wise investor who’s seen many market cycles. As Boyar writes: “Remember the most important thing to do during a correction is not to panic (using your cash hoard to take advantage of bargain prices comes a close second).”

Sincerely,

Chris Mayer
Editor, Chris Mayer’s Focus

Editor’s Note: In September of last year, Chris recommended Tucows (TCX) to his subscribers. In just over six months, the stock shot up 100%.

Bitcoin Proving to Be a True Chaos Hedge

Last week, White House scandals rocked the stock market. The Dow Jones Industrial Average, S&P 500, and Nasdaq indexes all experienced sell-offs.

But bitcoin went in the opposite direction. From Wednesday to Thursday, bitcoin gained nearly 5%, while the three stock indexes plunged an average of nearly 1.5%.

That’s because bitcoin is uncorrelated to any other asset.

Highly correlated assets typically move in tandem.

For instance, stocks generally move in the same direction (up or down). Whereas when the U.S. dollar goes up, the price of oil goes down (and vice versa). The same is not true of bitcoin. It’s unaffected by the movement of any other asset.

In today’s must-see 3-Minute Market Minder (transcript included), Palm Beach Letter editor Teeka “Big T” Tiwari says that makes bitcoin the perfect “chaos hedge.”

Click here to see why Teeka says you should own at least a little bit of bitcoin to help protect your wealth in a crisis.

Editor’s Note: Who do you blame for the sell-off in the stock market? The Trump administration or the Washington establishment and mainstream media? Share your views with us right here…

Editor’s Note: We told you driverless cars would be a big trend. We got some mixed feelings about riding in them from our readers…

From Mike M.: Heck yeah! I’d definitely ride around in a driverless car. It’s a budding technology and I’m always interested in testing out new things like that.

From Joe W.: I’m not getting in a driverless car…

From Leo M.: I like the driverless car trend as an investment. But I’m not sure I’d ride in one. I’d probably be scared silly the first time, but after a few successful trips, maybe I could get used to it.

Nick’s Reply: At the turn of the 20th century, thousands of people didn’t want to trade in their horses for “horseless carriages,” either. But eventually, those naysayers adopted the automobile. And companies like Ford and General Motors became industry giants.

The same will be true for driverless cars. The trend is already in motion. Fortunately, you can start riding the trend now before it becomes mainstream by investing in pick-and-shovel companies like Nvidia.

Tell us if you’d buy a driverless car right here…

From Bhavesh P.: I am a longtime Palm Beach Research Group Infinity subscriber. And I’d like to see you write more about “telemedicine.” Medicine is evolving at a rapid pace. And telemedicine and virtual medical consultants seem to be emerging trends.

I’m a physician myself and just passing on to see if you have something more to comment on this trend.

Nick’s Reply: Thanks, Bhavesh. We actually recently had a conversation about telemedicine in our office “investment club.” Virtual doctors’ visits will be huge going forward. One of our analysts is excited about at-home nursing services. We are investigating a few plays over here. So stay tuned.

At the Daily, we stay on top of the big trends like social media and driverless cars. Which ones are you following? Let us know here.