3 Ways Warren Buffett Utilizes Patience Over Profit When Investing

Billionaire Warren Buffett is considered a “buy-and-hold” investor. He looks for companies he understands and buys their stocks when he feels they represent a good value.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he said in a 1996 letter to shareholders.

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For this reason, companies like Coca-Cola and Apple have played key roles in the Berkshire Hathaway portfolio for decades. Ahead, we’ll explore more of how Buffett puts this investing practice to in motion and why he considers it so important to his wealthy-building strategy.

Buffett on Not Attempting Timing the Market

Through Berkshire Hathaway, Buffett first purchased shares in Coca-Cola back in 1988 and has held it since then, strengthening his position when prices fell. This stock, among others, prompted his assertion that his favorite holding period for a stock is “forever.”

Another famous Buffett quote shared in Economic Times summarized his investing philosophy well: “I make no attempt to forecast the market — my efforts are devoted to finding undervalued securities.”

The market can experience fluctuations based on interest rates, international politics and other factors, but solid companies continue to gain value. If you purchase a stock at a fair price, reinvest dividends and allow compounding to do its work, time is on your side. Rather than chasing a quick win, look for companies you believe in that are temporarily undervalued and watch your investment grow.

The See’s Story

Of course, large investment firms have certain advantages over retail investors, including the ability to buy entire companies if they fit their portfolio and philosophy. One example is See’s Candies, characterized by MorningStar.com as “a turtle, not a hare.”

In 1972, Berkshire Hathaway purchased the privately held chocolatier for $25 million. That same year, See’s generated $30 million in revenue and roughly $4 million in pre-tax earnings for Berkshire Hathaway.

The company incrementally raised prices slightly beyond the inflation rate for four decades, doubling its profit margin. See’s is steady, stable, and produces a well-loved product — all characteristics Buffett looks for in his investments. Whether you’re investing in entire companies, buying individual stocks or even fractional shares, you can look for the same traits.

In the case of See’s, Apple, Coca-Cola and so many other investments, Buffett didn’t try to predict, time or beat the market. He chose a company he believed in and embraced incremental gains, which he re-invested to grow a multi-billion-dollar portfolio.

“See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits,” Buffett wrote in a 2014 letter to shareholders.

The key to those profits? Patience.

Buffett on Being Patient

Buffett once said, “The stock market is a mechanism for transferring wealth from the impatient to the patient.”

Look at the predicted rise of value stocks in the Dow Jones index across 60 years, as reported by Forbes. Value stocks could grow by an average of 13.2% between 2024 and 2084, more than double the average return of the Dow Jones Industrial average, which is predicted to be 5.8%. Between September 2024 and September 2034 (10 years), a $42,063 investment in value stocks is projected to grow to $145,333.

Of course, the market may have down years, which is why fortune favors those willing to hold stocks through the good and bad.

Buffett on the Pitfalls of Reactive Trading

In a 2016 CNBC interview reported by Benzinga, Buffett said, “If they’re trying to buy and sell stocks, and worry when they go down a little bit — and think they should maybe sell them when they go up, they’re not going to have very good results.”

Selling too soon when a stock is rising could lead to lost profits. Selling in a panic when a stock falls leads to losses. Watching the market that closely can also create unnecessary stress, which diminishes your overall quality of life.

Investing and saving should provide peace-of-mind because you know you’re building a nest egg for the future. If you’re watching your portfolio and worrying about your next move, you won’t feel the benefits of seeing your money grow over time.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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