I’ve recently read the book Money Masters of Our Time, and Warren Buffett identifies six qualities that make a successful investor.
These six qualities are succinct and insightful. In addition to being patient, humble, and focused, he warns against being controlled by greed.
Here are some excerpts from the book that I hope you will find insightful:
- You must be animated by controlled greed, and fascinated by the investment process.You must not, however, let greed take possession of you so that you become in a hurry. If you are too interested in money, you will kill yourself; if not interested enough, you won’t go to the office. And you must enjoy the game.
- You must have patience. Buffett often repeats that you should never buy a stock unless you would be happy with it if the stock exchange closed down for the next ten years.
- You must think independently. Jot down your reasons for buying: “XYZ is undervalued by the market at $500 million because . . .” When you have them all down, make your decision and leave it at that, without feeling the need to consult other people: no committees. Buffett reasons that if you don’t know enough to make your own decisions, you should get out of decision-making. He likes to quote Ben Graham’s dictum: “The fact that other people agree or disagree with you makes you neither right nor wrong. You will be right if your facts and reasoning are correct.”
- You must have the security and self-confidence that comes from knowledge, without being rash or headstrong. If you lack confidence, fear will drive you out at the bottom. As an example of the folly of being too market-conscious, Buffett cites nervous investors who don’t know the facts and thus make a habit of selling stocks when they go down. Crazy, he says. It’s as though you bought a house for $1 million and immediately told the broker that you that you would sell it again if you got a bid of $800,000.
- Accept it when you don’t know something.
- Be flexible as to the types of business you buy, but never pay more than the business is worth.Calculate what the business is worth now, and what it will be worth in due course. Then ask yourself, “How sure am I?” Nine times out of ten you can’t be.
Among these 6 qualities, I find most people lack quality number 3: thinking independently.
You may be one of them if you scurry off to Twitter every time prices rise or fall for reassurance or explanation.
Prior to reading other people’s thoughts or analyses, it is a good habit to write down your own thoughts and analysis first.
Getting several perspectives (especially opposing ones) is great, but you should be able to think independently as well.
Alright, that’s all for today.
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Cheers,
Thomas