The Most Important Thing: Patient Opportunism

There aren’t always great things to do and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism – waiting for bargains – is often your best strategy…. You’ll do better if you wait for investments to come to you rather than chasing after them – Howard Marks, The Most Important Thing, Ch 13: Patient Opportunism (p. 107)

What’s the most important thing to understand about the market right now? Is it the AI Boom and the productivity revolution many think it will usher in? Is it today’s Fed Meeting, in which new chair Kevin Warsh finds himself in the awkward position of having gotten the position by promising President Trump that he would cut rates but being unable to deliver? Is it the SpaceX IPO?

There are always a lot of things going on in the market vying for investors’ attention. But sometimes they aren’t as important as they feel in the moment. I would argue that the most important thing right now is to step back and assess the broader market environment.

In Chapter 13 of his book The Most Important Thing, Howard Marks analyzes the concept of patient opportunism: Is the current market presenting opportunities to buy assets at good prices relative to their value? Or, because prices are high relative to value, is it presenting few such opportunities?

If you are a fundamentally oriented investor, it’s easy to see that it’s the latter. This is, in other words, what Marks terms a low return environment. Securities are simply not being offered at attractive prices relative to their value.

What to do in such environment? Unfortunately the answer is not the one you want to hear. The best strategy at the moment is simply to sit on your hands and wait for a better market environment – like Warren Buffett is doing with all that cash he has accumulated on Berkshire’s balance sheet.

While you may miss out on further increases in prices in this cycle, being patient and disciplined right now will set you up to scoop up bargains when the cycle turns. If, on the other hand, you lack patience and are All In, your hands will be tied when the market turns.

It’s been a long time since the market offered a great buying opportunity – but I think one is coming. In my opinion, the most value you can add as a professional investor right now and the wisest course of action for all investors is to be patient and disciplined.

This is easier said than done. As Charles Kindleberger wrote: “There is nothing so disturbing to one’s well being and judgment than seeing a friend get rich.” It’s very hard to sit patiently on the sidelines and wait for a better pitch when the market is going up.

But if you take a broader perspective, that’s how you can add the most value for your clients and for yourself at the current moment. A fatter pitch is coming; patience now will enable you to scoop up stocks at bargain prices when it does, which will set you up for many years of high returns going forward. These moments of extreme sentiment and valuation are when you distinguish yourself from the crowd by understanding the big picture and staying patient and disciplined.

Also see last week’s blog: “Play Your Game” (Friday June 12)