My first question would be: Do "best investors" actually exist?
The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance.
The article starts with a photo of Charlie Munger and Warren Buffett. Does this imply that they are "better" than the average investor?
Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett?
Now some might say that it is "easy" to outperform the market with a single stock. Pick a very volatile one and your chances are 50%. And that Munger and Buffett made many investments. And that the chance is low to make that many investments and in total still beat the S&P500. Ok. But how low is the chance for the number of trades Berkshire did? Maybe it is totally normal, that some investors do that many trades and beat the S&P500 by pure chance.
By the way, a QQQ certificate which contains the 100 largest tech companies also outperformed Berkshire and had about twice their performance over the last 20 years.
They get retroactively anointed 'good investors' due to survivor bias.
The ability to invest is a privilege, since most of us cannot afford to do nothing but learn and wait until a good investment opportunity shows up.
Perhaps it falls under biases but I'm surprised he didn't mention: Know when to quit. Or more precisely: Define your exit points and stick to them.
That is, we all have a tendency to double down on bad decisions (as things go sideways). Or we get greedy as things go well and hold longer than we should.
> Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper.
https://business.columbia.edu/cgi-finance/chazen-global-insi...
I think the strongest edge one can have is to be able to invest independent of any market sentiment. If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway.
It is far too easy to get wrapped up into wanting the best possible return by buying at the lowest price, and selling at the highest price. The reality is that's near impossible. However, buying companies that by the numbers indicate a 20% return, even if they night get cheaper in a crash, is a decent way to actually get a 20% return. The problem is those kinds of investments only show up with severe uncertainty and negative sentiment. By the time they feel good to invest in the price has reflected that change in sentiment.
Of course, this all presupposes skill at evaluating these businesses accurately and reliably, so losers don't drag you down when the negative sentiment is actually correct :/.
> 1. Temperament [...] My observation of many investors over my 20+ years of professional investing has led me to believe that temperament cannot be learned
I would be interested in whether this is a justified belief or not and whether there is actual research on that topic. Does anyone have any insights on this?
It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.
I guess it pays to be temperamentful and "do nothing" if the pool of money you get to play with is huge to begin with. If you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.
The only reasonable definition of "good investor" is consistently beating the market. Buffet is close but not perfect.
Does anyone know of an investor with a better record?
Let me guess : "post platitudes on HN"?
(I thought it said inveNtors, not inveStors... That would be exciting to read too)
Insider trading sometimes
They're more lucky.
Who do you consider to be the best investors?
They come to the office and ask your employees what they are working on and they relate their experiences to each employee individually.
This is for a small company of 6
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- Luck
- Get the best information, possibly insider
- Manipulate the market
- Not get caught doing these things
The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you will mostly end up with reasonable market-rate returns. But to be really good, you don't just need a good betting strategy, you also need the house edge.