MDUDUZI LUTHULI: Patience is the key to investment success

As an investment manager I have observed a universal challenge that transcends market trends and economic cycles — the struggle to cultivate patience. Despite having well-crafted strategies, many clients succumb to impulsive decisions driven by short-term market fluctuations or the fear of missing out. 

Investing requires a unique blend of discipline, resilience and perspective. However, staying focused on long-term goals can be daunting. The steady stream of market news, social media updates and conflicting opinions can test even the most resolute investor’s resolve. 

Consider a skilled archer aiming for a target. With each shot their chances of hitting the bullseye increase. But what if they only get to fire once? The outcome relies heavily on luck. Now imagine the archer gets to shoot 100 times. Their skill and accuracy become more apparent, and luck plays a smaller role. 

This concept applies to investing too. Having an edge — or a strategy with favourable odds — isn’t enough. You need time for those odds to play out.

In reality, we never truly know if our investment strategy has an edge. We may make only a handful of genuinely consequential decisions in our lifetime, and our time horizon may be limited. However, if we believe our approach has favourable odds, we must give it time to work. 

Having an edge without sufficient time is equivalent to having no advantage at all. We’re at the mercy of randomness. To succeed, we must be confident in our strategy and have the time to let it unfold. 

Far too many investors are reactive and too easily bored, leading to time horizons that are too short to exploit any potential edge. Impatience negates strategy; whether we have an advantage or not becomes irrelevant. That’s because our investment decisions are often subject to external factors such as market fluctuations, economic changes or personal circumstances. 

This is not to say time heals all wounds; quite the contrary when investing. A poor investment strategy suffers from an extended horizon. The longer we stick with a suboptimal approach the more likely we are to experience disappointing returns.

With an investment process that has the potential for catastrophic losses, often due to leverage, concentration or both, time becomes our enemy. It’s not just about the odds; it’s about the range of possible outcomes.

Short-term gain, long-term pain 

Consider your medical aid plan. Cancelling it may save you money in the short term, but it exposes you to significant tail risk over time. That risk increases with each passing day, making it essential to weigh the costs and benefits carefully. 

Yet some investors may benefit from asymmetric risk profiles. If they can reap rewards while others bear the losses, they will be incentivised to continue a flawed strategy. 

For example, hedge funds with annual performance fees and limited clawback provisions have a free option on success, with no downside risk. They will keep playing, hoping to get lucky. This highlights the importance of understanding the incentives and motivations behind investment decisions. 

Investors focus on finding edges but often overlook the time required to benefit from them. For most, the challenge lies not in identifying favourable odds but in persisting long enough to make them matter. 

To succeed investors must balance their strategy’s potential with their time horizon and risk tolerance. This requires discipline, patience and a deep understanding of their investment approach. 

In investing, time is a double-edged sword. On one hand it allows favourable odds to play out. On the other it increases the risk of catastrophic losses. By acknowledging these factors and adapting our approach accordingly we can increase our chances of success in the complex world of investing. 

Ultimately, investing is about managing risk and uncertainty. By recognising the importance of time and odds, we can make more informed decisions and avoid costly mistakes. As the adage says, “patience is a virtue”. 

• Luthuli is investment management director at Luthuli Capital.