This Special Skill Is the Secret to Producing Exceptional Market Returns

Last week, I discussed how even the best traders and investors in the world must keep learning the same lessons many times. They know the rules, but sticking to them and not being misled by their emotions is a constant battle.

One rule that everyone is familiar with is staying patient. Giving a trade or investment time to work is essential if you want to produce good returns. One of the most frequently quoted pieces of trading advice comes from Jesse Livermore: "It never was my thinking that made the big money for me. It always was my sitting."

Patience is essential, but it is only part of the equation. There will always come a time when decisive and aggressive action is essential. Great traders and investors possess the ability to flip the switch at the right time and move from extreme patience to aggressive action.

Warren Buffett is well known for his great patience with his favored stocks, but his partner Charlie Munger put it this way: "Patience and aggressive opportunism is what you need. It's an odd combination, but it's what works best."

Patience is useless unless you also can act aggressively when opportunities arise. The most fierce battle that traders encounter is between waiting and acting. If you sit and watch the market every day for hours, it becomes almost impossible not to do something. The market is also trying to entice you to do something, and it is extremely easy to act prematurely. The fear of missing out is always present when you watch the market closely and react to ordinary volatility.

The dilemma that active investors face is that in order to time buys and sells with some degree of precision, it is necessary to watch the market very closely, but the more closely you watch the market then, the more likely you are to be impatient and act prematurely.

Munger recognized how difficult it is to transition back and forth between patience and aggressive action. It is an emotional skill that the best traders and investors develop and cultivate over the course of years. They will still give in to their impulses at times, but they have learned that with extreme patience, the risk of poor execution is decreased.

I watch the market closely all day and constantly remind myself not to act out of boredom while waiting for the proper setup. I will battle this inclination for action by doing small day trades but it is often an unproductive action that is a distraction.

The great thing about the stock market is that there will always be a new opportunity. If you can sit and wait patiently, then high reward and low risk investments will always eventually develop, but timing is the key. You can't be so patient that you never try to hit a home run, but you must wait for the right pitch before you swing.

I maintain a list of stocks I believe will be long-term winners. I don't just jump in and buy them right away. I patiently wait for the right entry points and try to be aggressive when they do develop. It requires shifting from caution to action, which leads to significant returns.

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At the time of publication, DePorre had no position in any security mentioned.