Patience is one of the traits required to be a successful investor so it’s no surprise that a ‘ patience premium ’ is present in the markets.
The driving force behind this premium is discussed in a recent research paper on the topic from Igor Yelnik, a Partner, ADG Capital Management LLP.
Patience Premium And Ambiguity Premium
Based on historical returns, all investors can assume that the US stock market will produce a positive return over the next fifty years. However, we cannot tell where the market will be tomorrow or in two weeks’ time. This effect is immediately explained by “the well-known fact that expected return is proportional to time while its standard deviation is proportional to square root of time.”
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