Patience, an Important Quality of a Great Investor

This month I want to talk about investor psychology and one of the most important traits of great investors, patience. Often overlooked and certainly in short supply these days, few investors understand how patience can be the difference between mediocre results and fantastic results.

In fact, Benjamin Graham, Warren Buffett's teacher and mentor felt so strongly about the component of patience in investing that he always emphasized that 'the passage of time' was one critical component of investing success.

To bring this message home, here is the story of a stock I recommended in the past and how patience was the critical factor in realizing the potential of this company's value.

Insmed (INSM). Several years ago, I profiled Insmed, a biotechnology company that was in Phase III clinical trials for a protein based drug that was targeted to treat several aliments including small growth stature. At that time, the stock price of Insmed was about $1 per share. After reviewing the company's prospectus and management, I felt that although like all biotechnology companies it was a speculative stock, it was worth considering. However, over the next year I was unprepared for the roller coaster ride that followed. Although the company continued to execute their business plan over this time period, a lawsuit-happy competitor, Tercica, showed up and started suing the company for patent infringement. This caused the stock price to swing up and down but I held on because management expressed confidence that the lawsuit was without merit and their product would eventually prove to be a winner. Certainly, there were times when I wanted to throw in the towel but I stuck to my motto, sell only when the company no longer appears to be a quality company. Eventually, I was rewarded. The company prevailed through the lawsuit and was awarded FDA approval for IPLEX, their drug designed to treat small growth stature. More importantly, the potential uses for IPLEX have expanded to include diabetes and muscular dystrophy, two ailments with large unmet needs.

Recently, the stock price of Insmed has responded reaching as high as $3.00 per share. Also, important, Insmed's management has proven they can navigate the FDA drug approval process, not an easy task, and defend themselves against lawsuits. Although time will tell, this company appears to be a winner that required a lot of investing patience.

I will bet some of you have similar stories to tell. Please send me any stories you may have regarding how patience factored into your investing success and I will share them next month with everyone.

Happy Investing,

Bryan Rundell