Patience

I’ll tell you a quick trading story.

In 2007, I was bullish on Japan for some reason. I had a lot of bad ideas back then. I bought some shares of the ADR for Mitsubishi Tokyo Financial, and it promptly took a giant dirtnap… and stayed in the dirt for years. I sold a bunch of stuff back then, but this, I hung on to. I held the stock for 18 years, and I sold it a couple of months ago for a small profit. 18 years in one trade. That has to be some kind of record. I was nothing if not stubborn.

I don’t recommend doing this! I recommend taking small losses and moving on to bigger and better things. I made about 20% on this stock, but annualized over 18 years, it’s about half a percent a year. I just succeeded in tying up capital. But this is the point I want to make: If you wait long enough, if you are patient, your trade will probably go in the money.

Of course, there are occasions when this doesn’t happen. Sometimes, a stock goes to zero. I have had one or two things to go zero over the years, and if you are undisciplined about something, and it goes down 90%, then you say, “Screw it, I don’t care if it goes down the last 10%,” and then you end up with a five-letter ticker in your brokerage account. Happens to the best of us. I like to give trades a chance to work, but after I lose about 20%, that usually means I am wrong, and it is time to pull the ripcord. Otherwise, I will be in a situation where I am waiting years for it to come back and tying up capital.

Small-Cap Value

Small cap hasn’t worked in 20 years. Value hasn’t worked in 20 years. Look, I would argue for having an allocation to small cap and value if for no other reason that you need some diversification in size and style. 

Everyone is loaded up on large-cap growth. 100 shares of Nvidia are in the retail investor starter kit. It won’t work forever, and we may be closer to the end than the start of the growth trend. This is something my longtime analyst Adam Crawford and I have been talking about behind the scenes—a potential sector rotation, or regime change. To those who responded to our recent survey on this rotation stuff, thank you. If you haven’t, you can still do so below.

Anyway, I don’t like buying stocks with multitrillion-dollar market caps because, realistically, what is the upside? A $10 trillion market cap? I suppose it could happen, but I would rather diversify into stuff that is out of favor in the hope that it will go back in favor. You can make a pretty good living buying stuff that is out of favor. You just have to be patient.

I’ve said before that the four attributes of a good investor trader are:

1. Experience

2. Intelligence

3. Emotional Fitness

4. Introspection

I would add patient to the list. There are some investors who, if they are not getting consistent positive feedback from a stock, if it isn’t going up every day, will default to selling. They will sell the stocks that go down, but they will also sell the stocks that go sideways. I don’t agree with this. This is trend-following monkey stuff, and while it works for some people, it doesn’t work for me. Imagine the hardy souls who bought Carvana down 99%. It worked, for sure. Some patience was needed for that one. And some patience will be needed for the short too.

There aren’t many people investing today who were around for the last big bull market in value. Some people act as if it will never happen again. After 21 years, that is understandable. But it will happen again—it is just a matter of time. And the thing about style box rotations is that they are big and last for years. And that’s not to say there aren’t some great stocks you can pick in that bucket on a standalone basis as well.

The Money Is Made in Waiting

There is a saying: Trading takes up 1% of your time. Research takes up 9% of your time. The other 90% is just waiting.

You don’t make your money in the buying and selling; you make the money in waiting. Warren Buffett was the best waiter in history. He was exceedingly patient. We all can’t be Warren Buffett, but you might want to extend your two-week holding period a bit. People who work at banks typically have a 30-day holding period on their trades, for compliance reasons. I hear from these guys who get itchy about a 30-day holding period. Dude, I think in terms of years. You’re not going to accomplish much in 30 days.

Part of this is getting older. Old men and old women are patient, which is paradoxical because they have less time left on the clock! If I knew this when I was 22, I would have probably bought a bunch of stocks and held on to them for 30 years.

One last thing: I opened for Zedd at the Palm Tree Beach Club at the MGM Grand in Las Vegas last weekend—here’s a pic from my show. I am so lucky.