Sunday, July 9, 2023

The 7 Virtues Of Great Investors

Last year, in my Wall Street Journal newsletter (and in my columns), I wrote a series about the essential attributes that all great investors seem to share.

The series was inspired partly by Benjamin Graham’s declaration, in The Intelligent Investor, that intelligence is “a trait more of the character than of the brain.” It also is rooted in Warren Buffett and Charlie Munger’s constant emphasis on “temperament” and their repeated observations that the investors with the highest IQs often don’t earn the highest returns. Finally, it’s based on my own decades of watching and interviewing the world’s leading investors.

As Ralph Waldo Emerson wrote in his essay “Experience“:

Temperament is the iron wire on which the beads are strung.

I keep getting requests from readers who’d like to have all these posts collected in the same place. Someday, I might turn the series into a book, but for now, I’ll post links to them all here, along with an extremely brief summary of each.

You’ll find a lot more detail, including practical suggestions on how to cultivate these virtues yourself, if you follow the links below.

The seven virtues of great investors are:

CuriosityAs I wrote in my newsletter on Jan. 19, 2022:
Curiosity is the first investing virtue. It’s what enables you to find and develop all the others…. Ordinary investors are afraid of what they don’t know, as if they are navigating the world with those antique maps that labeled uncharted waters with the warning “here be dragons.” Great investors are afraid of what they do know, because they realize it might be biased, incomplete or wrong. So they never deviate from their lifelong, relentless quest to learn more.

Skepticism. I argued that…
…the main product of the financial industry isn’t portfolios; it’s propaganda.
And propaganda with numbers, cloaked in jargon, can hit investors like general anesthesia: You just drift off to sleep while financial professionals surgically remove your money….
Numbing investors with numbers is a standard marketing tactic in the financial industry. That’s why skepticism is one of the seven virtues of great investors.
I then listed my favorite techniques for sharpening your skepticism, which you can find here.

Independence. As I wrote in February 2022:
…without independence, investors are doomed to mediocrity.
What’s your single most valuable asset as an investor? Your mind!
If you let other people do your thinking for you, you’ve traded away your greatest asset — and made your results and your emotions hostage to the whims of millions of strangers. And those strangers can do the strangest things.

Humility. I warned in my newsletter that humility is a…
 …paradoxical blessing that you can possess if, and only if, you believe to the marrow of your bones you do not possess it. The harder you work at achieving and retaining humility, the more you will need to remind yourself that you still don’t have it, lest you puff up with pride at being humble.
Then I suggested three mental exercises that might help you cultivate authentic humility.

Discipline. In my newsletter for Jan. 11, 2022, I highlighted a couple of examples:
Warren Buffett moved from the buzz and bustle of New York City back to Omaha in 1956, where he began managing money in his house on a placid street.
The late global investor Sir John Templeton relocated from New York to the Bahamas where, he told me decades ago, The Wall Street Journal arrived days late. By reading the news a week later, Templeton told me, he could put it in perspective and prevent himself from over-reacting.

Patience. In March 2022 I wrote that patience is often measured not in months or years but in decades. Readers added their own keen suggestions for how to extend your time horizons and look past short-term disappointments.

Finally, courage. My column, “The Secret to Braving a Wild Market,” pointed out that none of these virtues will get you through the worst of markets unless you can muster courage:
Making a courageous investment “gives you that awful feeling you get in the pit of the stomach when you’re afraid you’re throwing good money after bad,” says investor and financial historian William Bernstein of Efficient Frontier Advisors in Eastford, Conn.

You can be pretty sure you’re manifesting courage as an investor when you listen to what your gut tells you—and then do the opposite.


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