Why Waiting is the Hardest—and Most Profitable—Part of Investing
Charlie Munger said,
“You don’t make money when you buy and you don’t make money when you sell. You make money when you wait.”
That assertion is so powerful that it is easy to overlook how critical it is. The whole idea of Rule #1 Investing is buying a stock low, and selling it high.
The Punch Card Approach: Invest Like Buffett and Munger
But here’s what often gets missed: the waiting period is when the real magic happens. This isn’t idle time—it’s when you deepen your understanding of the companies on your watchlist, refine your valuation estimates, and prepare your investing “punch card” for only the best opportunities. As Charlie Munger says, think of it like having just 20 lifetime punches—you’ll naturally become far more selective.
In this video, we're going to talk about just how powerful waiting is and why professional fund managers just can't afford to invest like this:
The Hidden Edge of Individual Investors
The first thing we can note is that it is impossible advice for professional money managers to follow. When Charlie says, "Wait" he means, "Wait for 5 years if necessary". If you’ve been given serious money to invest, waiting five years in cash is not a plan; it is a recipe for disaster.
No one is going to let you wait five years and do nothing. They’ll pull their money and move on. And I mean nobody; not your friends, family or fools and certainly not any professional investors who run pension funds. If you wait like Charlie, you’re not going to have anyone else’s money to invest but your own. Charlie can get away with it because he’s Charlie. And Warren can get away with it because he runs Berkshire and the only thing that happens if you pull your money out of Berkshire is that Warren gets to buy the stock back cheap.
This is where individual investors have a powerful edge over professionals. While fund managers are judged quarter-to-quarter, you have no boss looking over your shoulder. You can sit in cash, wait for a margin of safety to appear, and act only when the odds are stacked heavily in your favor. That’s a superpower most pros wish they had.
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Why Professional Fund Managers Can’t Afford to Wait
If you are a pro and you sit on the cash and the market goes up, your fund will underperform the market and you will almost certainly be fired.
Every fund managers has heard cautionary tales of young hot-shot money managers who thought they were the next Warren Buffett and who were summarily booted out on their butts after waiting a bit too long for that super deal to come along.
Fund managers learn from other’s mistakes that the best thing they can do is to be very active, have a lot of stocks and stay with the market. This institutional pressure explains why so many mutual funds fail to beat the market over time. Research from S&P shows that over a 15-year period, more than 90% of actively managed funds underperform their benchmarks. Why? Because they simply can’t afford to wait.
This is so deeply embedded into money manager DNA that doing better than the market when the market is going down is actually cause for concern that this fund manager might do worse than the market when the market is going up.
The big guys are almost, to a person, convinced of the truth of the modern portfolio theory that says that you can’t beat the market.
Therefore, if a money manager did better when it went down, he will likely do worse when it goes up… so they’ll pull their money out of that fund at the end of his good year.
Bottom line: Charlie believes there are only a small number of real opportunities to get very high returns with very low risk. Maybe 20 in a lifetime. He said that if you remove the 10 best deals Warren and he ever did, Berkshire would have average market level performance. The only way to get those kinds of returns is to wait and wait for the right opportunity to come along.
For example, Warren Buffett’s biggest wins—like Coca-Cola, American Express, and GEICO—came from patient, high-conviction bets made after years of watching and waiting. This reinforces why patience isn’t just a virtue—it’s a financial weapon.
How to Prepare While You Wait
While you wait, don’t just sit on your hands. Use this time to:
Read annual reports and earnings calls
Update your valuation models
Monitor industry trends
Expand your circle of competence
That way, when the market offers you a gift, you’re ready to act decisively.
Take the First Step
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The foundation of Rule #1 investing in 5 easy-to-follow lessons
2 hours of interactive guides and videos
Complete simple exercises and quizzes to test your knowledge
Access to tools used by investing experts for faster, simpler research
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**For a more personalized and hands on training experience, join us at our next 3 day investing workshop where my coaches (who were once students just like you) will work alongside you to help you master investing the Rule #1 way!
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**Editor’s Note (Updated May 2025): This article was originally published in 2017 and has been significantly updated in 2025 to reflect current examples and Rule #1 investing insights.
We now have more resources to help you learn how to invest:
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