From Impatient to Patient Investing

“The Stock Market is a device to transfer money from the impatient to the patient.” – Warren Buffett

 On our video last week, Eddie mentioned the above quote from Warren Buffett. Although I have heard it before, I think that this is extremely relevant to repeat as we seem to be back to a “normal” market, after the last few years of relative calm.


You may be thinking “relative calm?!?! What world is Ben living in?” While the world is constantly changing, the stock market finished 2021 with an historical lack of volatility. At it’s worst, the US stock market, measured by the S&P 500, was only down 5.2% off of it’s highs.

Take a minute and guess what you think the average peak-to-trough drawdown in a year is (since 1928). Remember, 2021 was 5.2%.

Do you have a guess?

The average annual peak-to-trough drop is 16.3% for the S&P 500. Another way to say that is that we expect that the broad US stock market to be down at some point each year around 16% from the highs. That is normal! This is where the impatient quote above really comes into focus. If you are nervous because of the drop in January (at it’s worst, S&P 500 was off 9.17% from it’s highs), just remember that January was normal. If you are short-term focused, the stock market is not the place for you. 

What about the decades-long investor, the patient investor? Here
are a few charts that should put your mind a little at ease, courtesy of Dimensional Fund Advisors:

1) Stock Market vs. T-Bills (short-term bonds) over time

The stock market does better than short-term T-bills 70% of one year time periods historically. As you expand that out to 10-year time periods, the stock market performs better 86% of the time!

2) Most Recent 10-year Performance of Various Asset Classes

As of the end of 2021, you can see the short term returns (1-year) become more consistent across asset classes as you expand out to 5 – and 10- year numbers. (Note that the returns over 1 year are annualized)

 3) Stock Market Returns after All-Time Highs

Again, as you can see, even after the stock market hits (then) all-time highs, it continues to hold up well 3 and 5 years out.


All this is to say, again, that the stock market rewards those that can stay invested and not panic through short-term volatility. We believe in investing for the long-run, rather than bet on short-term price movements. In the end, we are prepared to benefit from those that do not have a plan for weathering the normal stock market gyrations.

If you want to talk about these or anything else, reach out!