Warren Buffets attributes his success to 3 factors – Being Born in the USA, Power of Compounding & Luck! So, where are you born and most of the luck is out of our hands. But can we pick up the power of compounding? Yes, with a virtue called “Patience”. Let’s check today how understanding patience & compounding go hand in hand.

Patience is the most important element of the Power of compounding to bear fruits. I also got a clear picture when in a recent conference, a senior speaker from Motilal Oswal’s research showed the diagram below. Hence, I write this post off – Patience & Compounding – the correlation.

The power of compounding and patience does not differentiate; it works with everyone. Capitalize on it.

Another important element is understanding – The knowledge part. This factor can be developed on its own or outsourced.

Patience & Compounding

1 Low Patience Low Understanding

Most people are impulsive. You want everything today. A new phone… today, a new web series today… you will forget monthly budgets or the value of quality time in life.

I have seen credit card bills running in lakhs for the people who are low on understanding & have low patience. They believe more in luck. They just do not wait and indulge in every opportunity as they do not know. They look for quick fixes.

They believe they should participate and wait for hail merry. When they do not get the desired result, they come out too soon.

Apply in all IPOs… but sell on the very first day… sound similar?

2 Low Understanding & High Patience

I see many investors still holding IPO stocks of 2007. They will have an infinity of patience. All in and never leaves. They do not understand any company they own. They just hold it because they believe something from the portfolio will turn out gold.

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They normally have investments in all the asset classes possible but still look for the best returns. Most of the portfolio is dated and has never been reviewed or rebalanced.

When you ask them a reason – “I do not understand these… just invested as had surplus”.

3 High Understanding but low Patience

They read a lot, understand a lot, watch TV especially the financial frauds & financial history… but they do not act on it.

They know a lot, but do not keep patience. They churn on every economic cycle & every news. Holding something good is not their way as for them nothing is good enough to hold. They like games & changing scenarios with each draw.

They do not believe in Equity as they know the compounding equity assets have given. But they will keep changing holdings. They get bored keeping similar companies or schemes in their portfolio… they waste time, their money & returns.

Example: NPS is not for me… it’s good but who knows If I will be alive or not.

4 High Patience High Understanding

These form the best investors. They value quality assets. They want to hear about risks associated with a particular investment first. They already have an idea of returns.

They know they will buy with a lot of checks but once they buy, they will stick to it for a long time.

They value counters, they look for information that can destroy their idea of investing. Their faith is more on labor put on research. They value the process, keep on the alert, and most important – disciplined.

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Sounds like Warren Buffet? Yes, for them patience is the key. They know no shortcuts will make life simple.