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Posted by on Jul 10, 2014 in ETF Strategist

The Most Important Investing Trait? Patience

The Most Important Investing Trait? Patience

By Roger Nusbaum AdvisorShares ETF Strategist

If you’ve been reading my blog for any length of time (first thank you) you may be aware of my active involvement with the volunteer fire department where I live. The area has a high wildfire danger because we live in the forest and it is of course very dry for most of the year here in Northern Arizona.

July however is our rainy season; actually it is monsoon season which means rain every day accompanied by thunder and lightning. Often in July the lightning will hit trees and start them on fire. With everything else around that tree being soaking wet there isn’t much danger of the fire spreading but it is still preferable that we find the tree that is burning and mitigate the situation one way or another.

On Tuesday of this week our department was dispatched to just such an incident near our area along with several resources from the Forest Service and the neighboring fire department. If that seems like a big response for a burning tree you’re right but we didn’t know what it was until we got there.

Our engine tied in with one of the Forest Service vehicles at a high point (we live in the mountains) to try to get eyes on the smoke and sure enough we found it but we had already been driving around for well over an hour looking for it. The Forest Service crew we tied in with sent two firefighters to hike to it while we waited with our engine and the remaining Forest Service crew member.

We waited at this high point for about 45 minutes, this after driving around for about an hour. The two firefighters made their way to the lightning struck tree and relayed back how close they were to a road from the other side of the tree so we drove down to the other location, it was about a 15 minute drive over very bad roads requiring four-wheel drive low. When we got there we tied in with all the other resources I mentioned above, remained parked for another 20 minutes before the decision was made that the Forest Service crew could just handle it and so we were released after a couple of hours of doing close to nothing.

Wildland firefighting has a lot of intense action but it also has a lot of time just waiting and not doing anything. Last year we had a wildfire where the first day was intense action for 16 hours and the second day I sat on beach chair for five hours waiting to operate the water tender (water trucks are called tenders) if needed . The not doing anything part is of course all about patience and of course patience is a crucial part of investing.

Patience in investing applies to many (all?) aspects of portfolio management. If the stock market has an average annualized gain of 10% (it isn’t linear of course) then it will have an average monthly gain of less than 1%. That can breed impatience.

If you believe in asset allocation then you need to be ready for the idea that not every asset will go up all the time (if they all go up at the same time, how much diversification do you actually have?). Last year domestic equities rocketed higher while things like alternative investments and emerging market equities lagged far behind; gold was actually down on the year.

Where things like alternatives and gold are expected to have a low correlation to equities it shouldn’t be much of a surprise that they look nothing like equities when equities go up 30% in a year. Far from invalidating them, that is exactly what they should do but it takes patience while your alternative or your gold fund is lagging to first remember that this is what they are supposed to do and remembering that you don’t own alts and gold to go up a lot with equities but instead to offer protection when things for equities aren’t going as well as they did in 2013.

Of course we can also flip the entire conversation around when thinking about equities during the 2000’s. Equities did poorly while gold and many alternative strategies did very well. Equities were not broken, they had had periods where they had struggled like that including much of the 1970’s and we talked about that at some point they would do well again of course with no idea when and as we sit here today there will come another time that equities do poorly for a long stretch and when that happens patience will again be required.

Patience is required in many aspects of life including wildland firefighting and more importantly to you reading this post, patience is required in all aspect of your investing.