Patient Trading in Life
A while back, I took a friend on a tour of our global headquarters in Austin. As we walked the trading floor, my friend was struck by the state of calm he found there. Nobody was rushing or screaming. Nobody looked upset. If you didn’t know what you were looking at, you might have thought not much was happening at all.
But a lot was happening. These traders were doing something we’ve practiced since the very beginning: patient trading. The idea is simple. You don’t chase the price. You let the price come to you. You wait for the right conditions, and if they don’t show up today, you wait some more. The more anxious person in any transaction is going to get taken advantage of. So don’t be the anxious person. Stay calm.
When I started the firm in 1981, I wore many hats, including portfolio manager. I’d put out orders for how many shares of stocks we wanted to buy and sell of which companies. One day a broker called back and said, “I know you wanted 500 shares of this company, but I found 5,000 shares. Are you interested?”
I realized, with hundreds of names in the portfolio, if I were to buy a little too much of one, and too little of another, the effects would cancel out. So, I said, “Okay, well, I’ll consider buying more than I wanted of your stock, but I don’t want to pay the current price if I’m going to buy so much. What can you do for me?” Because the other side was more anxious, the broker checked and came back and said, “Yeah, they would take a rather significant discount from the current price.”
“In that case,” I said, “I’ll be happy to buy it.”
I used to tell our traders, “Don’t be a hero.” If a stock is trading funny, stand back and wait until it starts trading reasonably. Wait for anxious sellers who are willing to sacrifice price in exchange for speed. And if they aren’t willing to budge, don’t trade.
I’ve learned that flexibility can add value. It means less pressure, and better prices for investors. Think about when you shop for fruit at the market. You can get the best fruit—and the best deal—by shopping seasonally and being flexible. Being indifferent across many options of equal value gives a shopper (or trader) power.
Over time, I realized that this approach—“Participate, don’t initiate”—was a useful way of seeing the world. How many times have you watched a movie or TV show where someone in a crisis says, “Don’t just stand there, do something!”? In some situations it’s better to tell yourself, “Don’t do something, just stand there.” When we feel uncertain, our gut tells us to act. Do something. Anything. But in my experience, the impulse to act right now is often not your friend. This is especially true when it comes to investing.
A colleague recently described life today as “a fight against impulsivity.” Something’s tugging at you all day. The news cycle. Social media. Apps that make you feel like you’re going to be left behind if you don’t act immediately. Bringing the patient trading concept into your everyday life means taking a breath when everything around you is screaming at you to make a fast—and possibly bad—decision.
Take, for example, the process of buying or selling a home. Someone I know was going through a tough stretch and felt the urge to sell her house quickly. But when she slowed down and thought about it, she realized that being patient—waiting for the right buyer and the right moment—could result in a huge financial advantage over the course of her life. The house wasn’t going anywhere. Sure, the pressure she was feeling was real, but it wasn’t coming from the house. It was coming from inside her. Fighting the urge to act immediately—waiting patiently for the right buyer at the right price—netted her hundreds of thousands of additional dollars.
Another example: We’ve probably all, at some point, felt stuck in a job we long to quit. Some days feel absolutely miserable. But the patient trading version of quitting your job isn’t storming out of the office on a contentious Monday morning. It’s lining up your next move first, setting yourself up for the long term instead of reacting to the short term. The more flexible you are, the more options you have. And the more options you have, the better the outcome for you.
Sometimes life throws you genuinely hard logistical problems. Navigating a parent’s estate. Dealing with an insurance claim after a fire. These situations come with a lot of pressure to just get it done, sign the paper, take whatever’s on the table. Patient trading says: Slow down. Understand your options. Don’t forfeit the full value of something because you couldn’t stand the discomfort of waiting.
Patient trading is another way of saying: Be a long-term investor in everything. Your career, your relationships, your health, your home. Zoom out. See the full picture and your place in it. Let the situation work for you rather than fighting it.
The world wants you to react. It wants you to feel behind. And waiting is not the same as losing. The people who do best are often the ones who can sit still when everyone else is scrambling.
Stay calm, stay invested, and let markets work for you.
David