Having time and patience on your side is key to investment success

“THE two most powerful warriors are patience and time”, wrote Russian author Leo Tolstoy.

Every year, the financial industry spends vast amounts of time and money in a futile attempt to predict the future. However, successful investing isn’t about guessing the future — it’s about buying value, mitigating risk, controlling your emotions and being patient.

Buying value entails paying a price which is below the intrinsic value of the asset you are acquiring. The Iseq Index fell by 20pc in 2018 — much of it fuelled by fears of a hard Brexit and the impact that would have on Irish businesses. Regardless of whether the UK crashes out of Europe or not, life will go on and successful businesses will get through it. Green Reit is one such company that appears to offer good value. About 95pc of Green Reit’s commercial property portfolio is centred in Dublin — and much of the Dublin commercial property market is benefiting from the Brexit fiasco.

Understanding risk is vital for the successful investor. The financial industry often equates risk with volatility, but we see volatility as opportunity — that is, when prices fall, better value is on offer so long as risks have not increased. Real risk to your capital comes from investing in companies with weak business models, excessive debt and overvalued assets. Real risk is the permanent loss of capital. You only have to look back at what happened to the Irish banks for an example of what happens when a business takes on excessive levels of debt.

Controlling your emotions when markets are falling is a difficult discipline to master.

A sharp decline in markets makes even the most experienced investor question their rationale for being invested, but the point of maximum pain — just when you want to throw in the towel and sell everything — is often the best time to buy. December gave us a good example of this, as world markets fell by 11pc up to Christmas Eve — but recovered half of those losses by the end of the first week in January. Assuming that you have a sensible long-term investment strategy in place, you should look through the noise and short-term fluctuations in markets.

Patience is not a virtue that all of us are blessed with. But it is vital for successful investing. Last year was a negative one for financial markets but it is normal to have negative years. History highlights that one in five years deliver a negative return. A year of negative returns is quite normal and the positive years more than make up for this.

However, it is important to remain invested throughout the cycle to capture the positive returns and to avoid permanent loss of capital. One of the great traders of the early 20th century was Jesse Livermore — who was immortalised in the classic investment book, Reminiscences of a Stock Operator.

Much of the investment advice you read today can be traced back to this book and one theme which runs throughout it is the need for patience. Successful investing requires a long-term, patient approach. Investors have two choices: get informed and manage their own investments or outsource the job to an investment professional.

Getting informed isn’t difficult, but it requires work and it’s an ongoing process. If you are not prepared to acquire the necessary knowledge to manage your own investment portfolio, you should employ a trusted investment adviser. David Coffey is an investment adviser with GillenMarkets, the investment training and wealth management business (gillenmarkets.com) Any investment commentary in this column is from the author directly and should not be seen as a recommendation from The Sunday Independent