What does it take to be a good investor? I have been considering this question while learning from Warren Buffett as he addresses the 2018 Berkshire Hathaway annual shareholders meeting. You will probably get many different answers to the question depending on who you ask.
Some may say that you need luck; so that you can buy the next Google or Amazon stock at a low price and then go on holding it before cashing out when the price is highest. This idea of “timing the market” is extremely difficult and not many can have been in the right place at the right time.
Speculation and Investment Pros
Others may point to all sorts of speculative “investments” such as gold, cryptocurrencies or commodities. Of course these are really not investments as they do not have the capability to intrinsically generate value. The differences in price are often due to speculation and what others are willing to pay. No wonder why the prices vary wildly and volatility is high.
Another popular point of view is that only those employed as professionals in the finance sector on Wall Street or the City of London are qualified to invest wisely and have some kind of crystal ball as to how to make money with investments. This is very short sighted as most fund managers are salesmen who generate their huge incomes by marketing certain investments and charge rip off fees. [see Where are the customers’ yachts]
It is understandable why this is as the individuals can come up with fancy titles, designations and may have studied at prestigious institutions. I won’t name names but “star” fund managers come and go, usually taking with them millions of customer fees when they disappear. Same is true with many exotic investment funds and strategies which have cropped up over time.
The key is to learn from the best teachers and apply a few basic principles
During the meeting, Buffett and Charlie munger were challenged as to why they think little of business schools and all that, along with fancy designations like CFP or CFA. The question also queried if the to advice laid out the Buffett in the 1984 article The Superinvestors of Graham-and-Doddsville, which is critical of academia and details results obtained by value investors in comparison with the S&P 500, still holds today.
In response, Buffett stated that good investing requires a disciplined approach, should not be complicated and can be learned from great teachers. By teacher, it does not necessarily mean an academic, but someone who understands the best approach to a subject. Buffett gave Charlie as an example of someone who has been a good teacher to him.
It is also important to educate yourself about what good investing is all about. investing in stocks should be seen as buying parts of a real business which generate profits and provide value. it was also interesting to note that Buffett prefers someone with full understanding of Chapter 8 of The Intelligent Investor by Benjamin Graham (below) than a top graduate of a top five business school.
It was interesting to watch these two great investors speak again and I look forward to applying more newly learned principles in the near future.
You might also like:
- Lessons from Berkshire Hathaway – Build a business and invest in stocks to grow wealth faster
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- Why volatility is an investor’s best friend and top insights from Warren Buffett’s 2017 letter