Patience is one of the most difficult lessons to apply in the stock market. For every time it seems that an investor should "stick and stay to make it pay", there is an example where bailing on the first sign of danger proves to be the right move. After all, if a stock is careening towards zero, there is no point in hanging around and magnifying your eventual loss.

Still, long-term success in the stock market is still largely predicated on "buy and hold" investing over a number of years. While there are some people who can nimbly jump from idea to idea and produce good results as traders, their numbers are smaller than they claim. What that means is that investors need to have the patience and long-term vision to weather the bumps in the road and hold on to quality names even through the inevitable dips.

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Admittedly, it is a little harder to prove this theory in 2010 than in prior years. The weak markets of 2008 and 2009 led many stocks to crushing, if temporary, declines and it is hard to argue that investors could not have simply stepped to the side and allowed the 50%+ retracements to occur without their active participation as holders. Still, here are a few names where nervous investors would have ultimately cost themselves real money by letting the ups-and-downs of the stock force them out.

  1. VALE (NYSE:VALE)
    If you bought this Brazilian titan of the iron ore industry back in late 2008 and held on, you are likely happy with the near-tripling of the stock price. All along the climb up, though, there have been some sharp corrections in excess of 10%.
    Some of these wiggles and waggles were due to Chinese rhetoric attempting to talk down iron ore prices; others could be tied to worries about the steel industry and global demand. In either case, however, hanging on to the stock and keeping an eye on the overall trend of rising commodity prices and economic activity would have kept you in a winner.

  2. Abbott Labs (NYSE:ABT)
    Some stocks just keep giving you invitations to buy, and diversified health care company Abbott Labs is often my "Exhibit A". Investors can expect a pullback of 10%+ almost every year despite an enviable long-term growth record for sales, cash flow and dividends.
    While Abbott does not jump out as a burner, it is up over the past decade and paid dividends all the while to those investors who ignored the noise and held the shares.

  3. Silicon Labs (Nasdaq:SLAB)
    This example is a bit more personally painful; I could have had a three-bagger instead of a double if I had hung on through one of the retracements. There is no question that SLAB shares have been very volatile over the past decade, but investors who stepped up to buy during the pullbacks and held on during the choppy rallies usually fared reasonably well.

  4. Apple (Nasdaq:AAPL)
    As the largest tech stock around, maybe it is a little unfair to use Apple as an example of a stock that always seems to bounce back from pullbacks. The stock has more than quintupled over the past five years, but how many investors weathered the major pullbacks in 2006 and 2008, as well as the lesser dips that seem to happen basically every year. Investors who sold Apple in mid-2008 likely congratulated themselves for side-stepping the big decline - but how many remembered to buy back the shares later and took part in the huge rally over the last year and a half?

Volatility without Fundamental Change Is Just Noise

How do you separate the "noisy" pullbacks that you should ignore from the dangerous warning signs? That's an essential question in investing, and there is no easy answer. Nimble traders will always believe that they can get in right as rallies are emerging and get out as the steam is leaving the story, and perhaps some of them can. The rest are what I refer to as "liquidity" - they make more money for their brokers than they do for themselves.

In these four cases, none of these companies had distressing fundamental problems that should have worried investors during the pullbacks. In fact, all had solid growth theses underlying the story (though VALE's story is always a cyclical one, even if it is a longer-term cyclical play). Ultimately those theses supported the stock and allowed those who persevered to benefit.

The Bottom Line

It is hard enough to find a stock worth holding for many years. Do not complicate matters by being over-sensitive to transient market trends. After all, there is arguably nothing worse than being completely right about an idea and making no money from it because you were too cute about trying to perfectly time your buy and sell decisions. (To learn more, check out how to Recession-Proof Your Portfolio.)

Catch up on your financial news; read Water Cooler Finance: Who Is The Next Buffett?

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