Success in investing doesn’t correlate with high IQ! Here’s why… [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
I believe every investor has a personal goal to succeed in their investment strategies. They want their investments to be beneficial not only for themselves, but also for their families.
In our past “The Independent Investor” articles, we talked about fear and greed in investing, and the reasons why we should avoid these emotions.
Today, we’ll continue on this topic with a focus on the disciplines of the world’s greatest investors and their common stance on the DOs and DON’Ts of this financial activity.
Are you interested to know about today’s tips and insights?
Read the article below to learn more.
Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
Jesse Livermore, one of the pioneers of day trading, is one of the world’s greatest investors.
[Day Trading: A type of trading in which a trader buys and sells a financial instrument within the same day or even multiple times over the course of a day to capitalize on short-term changes in stock prices.]
In fact, Livermore’s investing acumen was so powerful that in 1924, the book titled, “Reminiscences of a Stock Market Operator” was written about him.
Until today, the Livermore-based book remains one of the most widely read and quoted by professional investors. It discusses his disciplines that also reflect the thinking of other great investors, particularly in this area:
“A speculator’s chief enemies are always the natural impulses of his own human nature.”
What does this statement mean?
No matter how much of a good investor you are, all your disciplines will break down as soon as you lose control of your emotions.
—
According to Warren Buffett, another investing giant and the CEO of Berkshire Hathaway, great investing does not correlate with high IQ (intelligence quotient).
In his words,
“Success in investing doesn’t correlate with IQ… what you need is the temperament to control the urges that get other people into trouble in investing.”
Charlie Munger, Buffett’s business partner at Berkshire Hathaway, agrees with that statement. He said,
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.”
Munger also added it’s remarkable how much long-term advantage investors have gotten by being consistently “not stupid” instead of being “very intelligent.” For him, applying this concept in his personal strategies enabled him to maintain an impressive 15-year streak of 15% annual returns.
Fact: Both Buffett and Munger are students of Ben Graham a.k.a. The Father of Value Investing, who similarly said,
“Individuals who cannot master their own emotions are ill-suited to profit from the investment process.”
Clearly, Professor Graham’s teachings are proven to be effective because his students became some of the world’s greatest investors, namely:
- Warren Buffett
- Charlie Munger
- Walter Schloss (a legendary investor, fund manager, philanthropist, and proponent of the Benjamin Graham School of Value Investing)
- Bill Ruane (founder of the Ruane, Cunniff, & Goldfarb investment company)
- Sir John Templeton (founder and manager of the Templeton Growth Fund company)
… and more!
Good Investing is BORING
Good investing requires patience. It’s like waiting for paint to dry or grass to grow. In other words, good investing doesn’t yield results overnight, but it produces great returns that are useful in the long run.
Here’s an economist whose philosophy positively contributed to the field of investing…
Paul Samuelson is known as The Father of Modern Economics. He was awarded the Nobel Prize in Economic Sciences in 1970 for having done more than any other professional to raise the level of scientific analysis in modern economic theory.
As a highly data-driven man, what did Samuelson say about the role of emotions in investing?
“Investing should be dull. It shouldn’t be exciting.”
Simply said, this financial activity is not meant to be an emotional ride. Samuelson says if you’re having fun while investing, you’re probably not making any money in the long run.
The bottom line?
To achieve success in investing, you have to stick to long-term plans and avoid over-emotionality when making financial decisions.
—
Professor Joel Litman, CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, says the attachment to money and to other financial outcomes is an underlying cause of over-emotionality of some investors.
However, he states that while he and his team advise their clients to avoid feeling strongly about their financial choices, being completely detached is also not the solution to this problem.
The proper approach to this concern?
Being non-attached!
Professor Litman believes by being non-attached to investing, you can be disciplined—you can roll with the punches of the stock market when they come, you can invest without being overly positive or overly negative, and you can enjoy your gains freely.
Besides, the concept of non-attachment is also a good advice for achieving all your goals in life, not simply in investing.
We hope you learned a lot from today’s article!
Exercise this particular discipline of the investing giants…
Learn to control your emotions and responses to stock market noises and sensational financial news…
Stick to your personal investment strategy…
By applying these tips, you’ll not only achieve your financial goals but also have a successful investment portfolio that will benefit you and your family in the long run.
Start becoming a disciplined investor NOW!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
LITERALLY.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
Our goal?
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
Powered by Valens Research
www.valens-research.com
