“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ… what you need is the temperament to control the urges that get other people into trouble in investing.” Warren Buffett
Professional money managers need to become proficient in a wide range of subjects including statistics, accounting and economics. But as the quote above suggests, mastering a specific body of knowledge or raw intelligence alone does not ensure investment success. Most professional investors are reasonably intelligent, have acquired the requisite skills and are motivated to succeed. But the skills most highly correlated with success tend to be more personality based and, therefore, difficult to acquire. Jason Voss, a former portfolio manager and Behavioral Finance author, has written extensively on the personality traits required for investment success. A sampling of some of my favorites from his list includes:
Self-knowledge: Investors, when faced with having to make decisions in the face of uncertainty, are prone to consistent cognitive errors and irrationality. Consider the tendency to buy high and sell low or purchase stocks based on investor tips. Understanding how you handle uncertainty and the circumstances under which you make your best investment decisions improves your chances of success. If you are generally not a patient person, for example, an investment strategy focused on long holding periods may be difficult to sustain. Voss’s advice? Understand yourself and adhere to strategies that are in alignment with your nature.
Decisiveness: Many investors seek out as much information as possible to reduce the amount of uncertainty related to a particular decision. This behavior is rational to a point. But as Voss points out, “… there is no such thing as a future fact.” Most things about the future are by definition unknowable. Successful investing requires the ability to make well-reasoned decisions in the face of this uncertainty. Knowing what and how much information is useful and then acting on it is a key investment skill.
Curiosity: Most successful money managers I know are curious about how the world works. They read widely and are constantly seeking out new information. To succeed in the investment world, you need to be able to hold an opinion that differs from the crowd. Curiosity helps investors arrive at the insights needed to develop and stick with a non-consensus view.
Voss makes some practical and specific suggestions on how to improve in each of the above areas. But he is also a big believer in meditation and the power that thoughtful reflection can bring to the investment process. So when you are pondering your next investment move, remember to hurry up and do nothing!