What are the qualities that are common among the investing greats? The habit of going against the wind? Rocklike patience? The trait of looking at things differently and deeply?
William Green, renowned author, says the traits common in some of the great investing minds strangely are also qualities that make great human beings!
William Green, author of The Great Minds of Investing, says the lessons one can pick from great investors like Warren Buffett and Charlie Munger are not only restricted to the financial world, but can teach great things and help one become successful in every walk of life.
Green, also an editor and co-author of many books including Guy Spier’s highly-acclaimed The Education of a Value Investor, was born and raised in London, and received a master’s degree in journalism from Columbia.
In The Great Minds of Investing, which features profiles and photographs of 33 renowned investors, including Warren Buffett and Charlie Munger, he talks about what investors can learn from these immensely successful money managers, both about investing and life in general.
“There is a lot to be learned and admired about some of the great investors, especially the way they are able to beat the market odds,” says he.
In the book, Green tries to find some unique qualities that are common to many of the investing greats and reasons that make them special.
Talking about how he got the idea of writing a book on investing wizards, Green says when he turned 40, his mindset completely changed and he felt life was not only about making money, but also about learning the art of becoming smarter, wiser and happier.
“I think when you hit your 40s, you start to suffer from all sorts of existential angst. So, instead of just thinking, how do ‘I get rich’, ‘you start to think, well how do I live?’ ‘How do I make better decisions?’ ‘How do I eradicate what Charlie Munger would call standard stupidities?’ ‘How do we make good decisions in the face of a very uncertain future?’ ‘How do I handle adversity?’ ‘How do I handle pain?’ ‘How do I handle stress?’ ‘How do I balance my family, work, all of these things?’ And so, the question really became how to live,” he said in a presentation at Talks at Google, whose video is available on YouTube.
Fascinated by some of the geniuses of the investing world, he wondered if he could learn from them by reverse engineering their thought processes.
“I became really fascinated by the fact that there was this tiny minority of people who managed to defy gravity by performing extraordinarily well for many years as investors. And I sort of figured, what if you could reverse-engineer these people and figure out why it is that they win this game? How do they stack the odds so that they win as investors? What characteristics do they have in terms of temperament, in terms of principles, in terms of insights? And is there any way that I could learn to do this?” says he.
Green said after interviewing and spending time with these great magicians of the investing world, he learned four lessons from them which can also be considered very important to living a fulfilling life.
· Be a free thinker and diverge from the crowd
Green says one of the most interesting qualities that all the investment gurus possess is their ability to diverge from the crowd and think freely. These investors do not care what other people would think of them or their investment decisions. They have enough confidence in their own ability and reasoning for not immediately assuming that they’re mistaken or wrong.
They know that the crowd is always reactive, which influences decisions of most people, leading them to get carried away with fads and listening to market predictions.
Green feels the key for successful investment is the ability to detach from the stupidity of the crowd and applying one’s own mind.
“You must have the willingness to become lonely. You have to diverge from the crowd. The willingness to say, ‘this is how I do thing’;.’ This is a way to act and is a really efficient exercise.’ ‘I don’t care what anybody thinks of me is an extraordinarily powerful way to think’. And this became kind of a metaphor for me when I started thinking about the great investors, that what all of these guys have in common is they’re kind of mavericks and free thinkers. They don’t go with the crowd. If you want to outperform, you have to be different. And this is something that all of these guys have,” says he.
Giving example of Sir John Templeton, he says this investing legend compounded his money at 15 per cent annually for over 60 years. In 1939, when the European nations were at loggerheads, and the market was getting smashed by the Great Depression, Templeton identified a group of stocks that he figured out were going to jumpstart after World War II. He bought around 104 stocks, out of which about 37 companies were going bankrupt. His broker thought it was not a good idea, but fulfilled his request. Five years later, 100 out of 104 gave him outstanding returns and his capital swelled.
· Remain grounded and not get carried away
Green says another quality common to all these legends is that they are very humble. He feels humility is particularly important in investing because even the greatest investors assume that there are chances they could be very wrong on an investment bet, and thus, they protect themselves by hedging against that possibility.
Green said the investment world can be very complex and uncertain and just because some brilliant hedge fund manager is buying a stock doesn’t make it a good investment and doesn’t mean an investor should follow his move blindly without doing his own research.
Giving the example of Howard Marks, he says this investment guru stresses the importance of remaining grounded and not getting carried away. “Marks told me the screwiest thing that an investor can do is to think that he is a master of the universe. The future is extremely uncertain. So you don’t want to get carried away by this hubris of thinking that you know what the future holds,” he says.
· Stay calm and persevere through panic
Green says it is essential for investors to build emotional resilience. As the investment world is full of uncertainty, there is always a time when great investors also get hit.
What separates great investors from others is the attitude with which they approach any situation. These great investing minds know the importance of learning from mistakes and persisting with their plans.
Giving Bill Miller’s example Green said although this great value investor suffered huge capital loss during the financial crisis, yet he was able to remain calm and persevere through the panic. “If you want to be successful as an investor for a long time, you need to pay attention to the need to build emotional resilience. And this is a really important point that I think particularly people forget when we’re going through a good period. You tend to assume things will always be good. And you tend to overreach during these good periods. We get full of overconfidence and hubris. And I think it’s really key to remember the market euphoria is a pendulum. And so just not to get carried away during these periods where everything is good. You want to work on the basis that there is going to be a time where I’m going to get hit. And this isn’t to be gloomy about it,” says he.
Green says it’s very tempting to assume while looking at these great investors that their lives have always seen success. Green says this has not been the case and all of them have had their fair share of ups and downs.
· Key to happiness is in leading a satisfied life
Green says one of the best lessons he has learnt from these investing legends is how they have achieved a level of satisfaction in living their lives.
He feels the legendary investors have the admirable quality of looking in the mirror and telling themselves that they are living a happy and meaningful life.
Green says the secret to their happiness is, as Warren Buffet puts it, they ‘live by an inner scorecard’ and not bother about what others think of them or their investment bets. These legends, Green feels, have an infectious energy and glow about them and they have found happiness from helping others, impacting others, from learning and teaching.
Giving the example of Mohnish Pabrai, he says the ace investor believes in the power of giving and makes charitable contributions through his scholarship programme. Green says it’s quite possible that Pabrai will be remembered more for his charitable contributions than his investment skills, which will give him more satisfaction when he looks back at his life.
Finally, Green believes all human beings possess some gifted skill or the other which they can use to impact other people’s lives. He advises investors to spend some quality time in thinking about this gift and how they can use it to make a difference to humanity. This, Green feels, can be achieved by “tilting the playing field” in their favour by the simplest of kind gestures, which in turn can increase the odds of having a successful and a happy life.
(Disclaimer: This article is based on William Green‘s book “The Great Minds of Investing” and his presentation at Talks @ Google, whose video is available on YouTube).