I must admit that when I was young, I had doubts about the view of “The most important qualifty for an investor is temperament, not intellect”. However, after many years of practical investment experience, I found that I have become more and more in the same view that the key to long-term success of investors is the key to long-term success of many investment gurus, and this point is almost familiar to you and me.
One of the rare consensuses of all investment gurus. The viewpoint that can become the consensus of almost all investment masters is certainly worthy of our in-depth discussion and research.
This post is very special. I almost always quote the speeches of these investment masters directly. You can ponder the meaning of his original words.
Temperament is more important than other knowledge
Graham once said, “We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment
process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stockmarket lore.” in his famous book “The Intelligent Investor “
Peter Lynch said, “This is the most important question of all. It seems to me the list of qualities ought to include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit to mistakes, and the ability to ignore general panic. ” in his famous book “One Up On Wall Street”.
Buffett’s view
Warren Buffett appears on Adam Smith’s Money World in 1985. In his first ever TV interview. Buffett shares his rules when on investing. “It’s an intellectual trait, not an intellectual trait. When you do things, you don’t need to have a high IQ, and you don’t need to be able to play 3D chess.” But you need a stable character. You need intelligence that is not driven by the emotions of the crowd. It’s not about the opinions of others, it’s about your thoughts.”
In 2006 letter to shareholder, Buffett wrote: “Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I’ve seen a lot of very smart people who have lacked these virtues.”
Just like Buffett on October 16, 2008, when the financial tsunami swept across the world, the global stock market collapsed; when everyone fled the stock market. He submitted an article “Buy American. I Am.” to the “New York Times” . He revealed at the beginning of the article “I’ve been buying American stocks. This is my personal account I’m talking about.”, and “Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.
To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”
In Buffett Partners Company Letter 1967, Buffett ever wrote: “We will not follow the frequently prevalent approach of investing in securities where an attempt to anticipate market action overrides business valuations. Such so-called “fashion” investing has frequently produced very substantial and quick profits in recent years (and currently as I write this in January). It represents
an investment technique whose soundness I can neither affirm nor deny. It does not completely satisfy my intellect (or perhaps my prejudices), and most definitely does not fit my temperament. I will not invest my own money based upon such an approach hence, I will most certainly not do so with your money.”
Like Buffett said: “Success in investing doesn’t correlate with I. Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” As quoted in “Wisdom from the Oracle of Omaha“ by Amy Stone in BusinessWeek (5 June 1999)
Keynes’s View
Keynes once said, “Investment is to be successful, in fact, personality is more important than logical thinking.” Keynes mentioned in a speech to the King’s College Industrial Management Committee, “In the modern organization of the capital market, holding publicly issued shares of investment People must be calmer, more patient, and more persevering than those who hold other forms of assets.”
Keynes told a colleague that in order to succeed in investing, “more temperament than logic.” What is needed is the ability to remain calm when everyone loses their minds. As long as a smart investor has the concepts of intrinsic value and safety first, and understands that the market is not only a voting machine, but also a measuring machine, it is easy to cultivate the correct character required for investment success.
Investors must know themselves first
Charles Ellis, a celebrity in the investment industry described some of the nature of human beings when investing: “Whether investors can control their temperament determines your ultimate investment performance.” “If you want to use investment as your lifelong career, the only thing that must be done is to “know yourself”!”
George Goldman (with Pen name of Adam Smith) said, “The stock doesn’t know you own it. If you don’t know who you are, the stock market is an expensive place to find out. We human beings are a bunch of emotions, prejudices, and twitches and that makes it hard for us to understand the market. You will never know how it’s going to behave when. What is more important is how you’ll react when markets don’t react in your favor.”
For how to know yourself, I suggest you to refer to my other blog post “Investors’ DISC test to assess your traits“
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- “Investors’ DISC test to assess your traits
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