All big investment writers – Benjamin Graham, Warren Buffett, Charlie Munger, Jason Zweig and Morgan Housel – have wondered what are the characteristics of good (great) investors. Here are my views on what I think. My observation is based on all the readings and experience of investing and meeting many investors…
Curiosity to learn about many things- from Anthropology to Zoology. No one knows what you will learn from which subject. History, Economics, Accounting, Philosophy, Psychology, and Biographies of businessmen and wealth managers – are obvious. Not so obvious could be booked on health, cooking, gardening, other sports etc.
Curious – and therefore always reading is an important characteristic.
Scepticism – being sceptical about everything around you is a boring, tiring but very important characteristic that I have noticed with big investors.
Broad picture –yes, but micro picture seeing how the company is reacting to the macro is just as important.
Knowledge of Accounting – even though many of them can’t do a full detailed analysis, they have a good handle on the numbers of most companies.
Knowing the difference in their trading and investing portfolios – distinguishes the best investors from the normal run-of-the-mill investors.
Independence – most of them understand the risk of listening to analysts who have met the promoter. One investor whom I know starts by asking the analyst - ‘when was the last time you met the promoters.’ He clearly does not want the bias to hit his portfolio.
Humility – almost all the investors whom I know are humble, and understand their limitations. So sometimes when the share in which they invest goes up 10% in say 3 days, they are happy to sell it off knowing that they will be able to get it cheaper in most cases.
Discipline – No big investor can afford to be without discipline. It is the most important feature – when they make norms they stick to it, come what may. I know some seriously rich investors investing big amounts of money in March and April 2020 because their investment portfolio statement said they should do.
Many of them have a very well-written Investment Philosophy Statement – they have goals and they know exactly what they want. I could have called this Goal Based Investing.
Most of them have the next 20 years' expenses – in debt instruments. Thus, even if they started at say 70% in debt, they move up to say 90%, but may remain there. This is because they are comfortable with a booming market and can sit on capital gains for really long periods of time.
Ability to sit tight over long periods of time – without worrying about short-term fluctuations.
Patience – and reasonable expectations! They get good returns, but they have very few expectations from their portfolios. This helps them remain calm during big drawdowns.
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire
Rich - Invest C40 a day’