Three Ways to Hone the Financial Superpower of Patience

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Why do the rich get richer? Yes, I know, the system’s rigged. But beyond that, a big reason why the rich get richer is that they have the luxury of patience. Consider the following:

• Right now Tesla’s trading at around $650 per share.
• If all things go as Elon plans, and Tesla perfects self-driving automation and sells 20 million vehicles in 2030 (40x 2020 sales), Tesla’s share price could hit a whopping $20,000 in nine years.
• Twenty-five thousand invested in Tesla today could thus turn into $769,231 in 2030. That would amount to an annual average return of 38.6 percent. Not too shabby.

The rich get richer ethically because they can take advantage of opportunities like the one described above. They have plenty of play money to invest in a company at the forefront of an emerging technology or trend, and they are comfortable enough financially to let such an investment take as much time as it needs to blossom (ten years or more). That’s the luxury—and power—of having patience in the investing world.

Now, the question I’d like to address today is this: Can the average schnook develop the financial superpower of patience and use it to his or her advantage? I say the answer is “yes.” It won’t be easy, of course, but it can be done. Here’s how.

Three Ways to Hone Financial Patience

Get Financially Strong

There’s only one way to describe someone who can invest a nice chunk of money in an individual stock and not think about it for ten years or more: that someone is financially strong.

Financial strength is the foundation of financial patience. It’s as simple as that. And there are three tried-and-true ways of becoming financially strong. Here they are:

1. Work
2. Spend less than you earn
3. Save

Mrs. Groovy and I began embracing the above wealth-building ways in earnest in 2003. By the time 2010 arrived, we were saving roughly 60 percent of our gross household income. That translated into a lot of financial strength. And it gave us the ability to be patient. In 2013, we took advantage of our patience muscles and invested a nice chunk of money in a two-bit lithium company.

In the next section, we’ll explore how our lithium investment, after eight years of blah, has finally begun to reap some impressive returns. But before we go there, I just want to share a hack that will make Step Two of our three tried-and-true, wealth-building ways easier to achieve.

Egotrage

If you’re like most Americans, the three biggest expenses in your life will be housing, transportation, and education. And if you overspend in these three areas, which is ridiculously easy to do, you will find it very difficult to move beyond paycheck-to-paycheck living and save.

So how do you resist the urge to overspend in these three areas?

Egotrage. Instead of checking your “privilege,” which has become a national sport of late, start checking your ego. Never forget that despite all the flattery you get from parents, teachers, and politicians, despite all the “trophies” you reaped in your youth, and despite all the delusions of grandeur you comfort yourself with, you ain’t shit. And you don’t “deserve” anything—especially a fancy home, a fancy car, and a fancy $50,000-a-year education at a fancy college.

Humble yourself when it comes to housing, transportation, and education—live in a small home with Craigslist furniture, drive a crappy car, and cash-flow an associate’s degree—and you’ll find it much easier to spend less than you earn.

Get Financially Sophisticated

Here are two great quotes related to patience and investing:

“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
—Charlie Munger

“The stock market is a device to transfer money from the impatient to the patient.”
—Warren Buffett

The financially sophisticated are those who can resist the temptation to sell whenever the stock market turns ugly. The financially unsophisticated are those who can’t. The goal, then, is to become financially sophisticated, and you achieve this goal first by reading. Here are three great books that teach you how to ignore your lizard brain, fight through the psychological pain of loss aversion, and become a patient, long-term investor:

The second step to achieving financial sophistication is to become an actual investor. It’s one thing to read how you should keep buying stocks when the stock market is crashing; it’s another thing to actually do it. Everyone is fake-brave when they don’t have money on the line.

Mrs. Groovy and I began our investing career in 2006. We opened Roth IRAs which we contributed to monthly, and we opened defined-contribution plans at work which we contributed to with each paycheck. Then, in the fall of 2008, we had our first big test. We got punched in the mouth by the Great Recession and our investment portfolio was humbled. But despite the pain of watching the value of our mutual funds wither, we soldiered on and kept investing. Each month we each contributed $500 to our respective Roth IRAs, and each paycheck we each contributed 15 percent of our salaries to our respective defined-contribution plans.

It wasn’t easy buying stocks on sale during the Great Recession. The lizard brain is real. But we learned that renowned investors such as Warren Buffett were right. The market eventually rebounds and rewards the patient. So we kept to the plan—we devoted a set dollar amount to buying stocks every month and we rebalanced once a year to keep our preferred stock/bond allocation intact. And as the trajectory of our net worth kept rising over the years, each market dip, correction, and pull-back became easier and easier to endure.

Now back to our lithium stock. Below is a chart showing the share price of our lithium stock through the years, beginning in 2013—the year we hurled a nice chunk of money at it. And as you can see, the first seven years were rather frustrating. Each time it looked poised for a breakout, it stubbornly retreated.

But finally, in 2020, investors came to the conclusion that the EV revolution is real (thank you, Tesla!) and lithium will become an increasingly valuable metal. And the 426 percent growth in our lithium stock’s share price last year reflected this investor sentiment.

As of today, our return on our lithium stock is roughly 10x. Should the company behind our lithium stock enter a supply agreement with a big EV player (Tesla, GM, Panasonic, etc.), which is likely to happen this year, our return could very easily leap from 10x to 30x or 35x.* And if that isn’t a vivid example of the luxury—and power—of patience, I don’t know what is.

* This is precisely what happened to a lithium company called Piedmont Lithium. At this time last year, it was trading around $4.75 per share. Then in September of 2020, it signed a supply agreement with Tesla and its share price shot up to $39.11. It’s currently trading at $79.60 per share.

Become a Future-phile

It’s one thing to have play money to invest. It’s another thing to have the stomach for long-term investing. And it’s still another thing to correctly identify an emerging technology or trend.

Up to this point, we’ve explored the first two things—how to get play money, and how to develop the stomach for long-term investing. Now it’s time to explore how to identify an emerging technology or trend.

The keys to identifying emerging technologies and trends are rather straightforward. You need to be observant, and you need to be curious. First, ask yourself what areas of society aren’t working. This will help you identify industries that are ripe for disruption. Second, be an avid consumer of tech-related magazines, vlogs, and podcasts. This will get you familiar with cutting-edge technologies—things such as drones, 3D-printing, and solid-state batteries. Then, take the industries you feel are ripe for disruption and see if any of the cutting-edge technologies you discovered pertain to them. And if you find this kind of match, so to speak, invest in a company that’s either spearheading the cutting-edge technology or can piggy-back on a cutting-edge technology.

To show how this process works in the real world, I’ll now review how Mrs. Groovy and I came to take a flier on a two-bit lithium stock.

Be Observant

I’m a climate-change skeptic, but most of my fellow Americans aren’t. And the determination to rid this world of fossil fuels has been growing for at least a generation now. So way back in 2010, when our financial strength was starting to blossom, it was evident that the fossil fuel industry—especially as it related to generating electricity and propelling cars—was ripe for disruption.

Be Curious

In 2013, I read an article in the MIT Technology Review that said batteries were key to disrupting the fossil fuel industry and that lithium was key to batteries. It also said that battery-grade lithium wasn’t easy to produce, and if energy storage and EVs did become more mainstream, the need for lithium would likely outstrip the supply of lithium.

Invest

Putting two and two together, I determined that windmills, solar farms, and EVs weren’t going away, and the batteries needed to support these technologies were going to need lots of lithium. So I googled lithium mining companies and found one that was trading for 80 cents a share on the OTC. I then turned to Mrs. Groovy and told her about the MIT Technology Review article and asked her if she wanted to take a flier on the lithium company I unearthed. She said “yes,” and I then asked her if she wanted to lose $2,000. “No,” she answered. She wanted to lose $5,000 (Mrs. G has ice in her veins when it comes to investing). And thus began the flexing of our well-honed patience muscles.

Quick aside: It should be noted that the vast majority of the Groovy portfolio is invested in stock index funds and bond index funds. Investing in individual stocks is very risky. So when we took a flier on our lithium stock, we only put a very small portion of our portfolio in harm’s way. In other words, we only invested an amount of money we could safely lose.

Final Thoughts

Okay, groovy freedomist, that’s all I got. What say you? Is patience a financial superpower? And, if it is, can the average schnook acquire it? Let me know what you think when you get a chance. Peace.