As Whitney Tilson observes, the key ingredient for successful investing is the „right person“.
– They are businesspeople, and understand how industries work and companies compete. As Buffett said, „I am a better investor because I am a businessman, and a better businessman because I am an investor.“
– While this may sound elitist, they have a lot of intellectual horsepower. John Templeton, for example, graduated first in his class at Yale and was a Rhodes Scholar. I don’t disagree with Buffett — who noted that „investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ“ — but would point out that he didn’t use the numbers 160 and 100.
– They are good with numbers — though advanced math is irrelevant — and are able to seize on the most important nuggets of information in a sea of data.
– They are simultaneously confident and humble. Almost all money managers have the former in abundance, while few are blessed with the latter. „Although humility is a trait I much admire,“ Munger once said, „I don’t think I quite got my full share.“ Of course, Munger also said: „The game of investing is one of making better predictions about the future than other people. How are you going to do that? One way is to limit your tries to areas of competence. If you try to predict the future of everything, you attempt too much.“ In addition to what Munger is talking about — understanding and staying within one’s circle of competence — there are many other areas of investing in which humility is critical, which I discussed in „The Perils of Investor Overconfidence.“
– They are independent, and neither take comfort in standing with the crowd nor derive pride from standing alone. (The latter is more common since, I argued last week, bargains are rarely found among the crowd. John Neff said he typically bought stocks that were „misunderstood and woebegone.“)
– They are patient. („Long-term greedy,“ as Buffett once said.) Templeton noted that, „if you find shares that are low in price, they don’t suddenly go up. Our average holding period is five years.“
– They make decisions based on analysis, not emotion. Miller wrote in his Q4 ’98 letter to investors: „Most of the activity that makes active portfolio management active is wasted… [and is] often triggered by ineffective psychological responses such as overweighting recent data, anchoring on irrelevant criteria, and a whole host of other less than optimal decision procedures currently being investigated by cognitive psychologists.“
– They love what they do. Buffett has said at various times: „I’m the luckiest guy in the world in terms of what I do for a living“ and „I wouldn’t trade my job for any job“ and „I feel like tap dancing all the time.“