2 Things Investors Need in 2022

Originally published on Linkedin on 24th October 2022

In a world of no-fee trading apps and a 24/7 news cycle, there are two things I believe many investors lack that can make the difference between decent gains and substantial losses. These two qualities are patience and optimism.

1. Patience

Patience is a crucial trait. One of the great benefits of investing is that you get to sit back while other people run companies for you. But if your main focus is on what happens to the share price in a matter of months rather than how much profit the underlying company will have made five or 10 years from now, the experience will be unnecessarily stressful and may cause panic selling, which generally occurs at a time when it is better to be buying instead.

Warren Buffett, who is one of the most successful investors of all time, has described the stock market as "a device for transferring money from the impatient to the patient". Declines in the stock market can be seen as having the benefit of flushing out gamblers, which leaves greater future profits for the patient longer term investors.

2. Optimism

This does not mean being blindly and carelessly optimistic with your investment decisions. Rather the key is trying to maintain a healthy balance. In pursuing this, we should bear in mind that us humans already have an innate negativity bias - one that is useful when being hunted by predators but a lot less so in the modern world. Couple this with an overconsumption of political and financial news and our outlook becomes very warped. We can forget all of the wonderful things that have been happening and are probably going to happen.

There is no doubt that the events of this decade thus far have been damaging for global progress. It is more of a challenge to be optimistic now because things are getting temporarily a lot worse for a lot of people. But the long term trends for humanity have been miraculous.

For example, according to Our World in Data, the number of people living in extreme poverty fell from close to 2 billion in 1990 to 0.7 billion in 2015 and global child mortality fell from 18.2% in 1960 to 4.3% in 2015.

The forces behind such progress, which largely include human ingenuity and technological advancement, are not going to vanish. This is because today's technology is being used to create tomorrow's technology and so on and so on. The opportunity for greater gains with this powerful, exponential trend is truly substantial.

Caution

When we do go through difficult economic periods, it even more important that you only invest what you can comfortably afford to put away for years - a minimum of five years is often recommended.

I should also point out that patience and optimism are less likely to help those who have made very low quality investment decisions.