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Five Common Qualities of All Great Investors

January 24, 2014 | About:

 Ever wondered what is common among all great investors. Why people love Warren Buffett and Charlie Munger so much.

The first thing that comes to our mind is that all of them are talented stock pickers. So we all agree on the point that they are very good at stock picking and have made a lot of money.

But does that make them likeable? I don't think that all rich and successful people are admired and liked the way these great investors are. So what makes them so likeable then?  

If you study any great investor we can see that they have the following five qualities which I feel are common to all of them.

 1. Humility :

Humility “is knowing the edges of your own competency.” - Warren Buffett (Trades, Portfolio).

"I like people admitting they were complete stupid horses' [behinds]. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn." -Warren Buffett (Trades, Portfolio).

Who better to learn about humility from than Buffett and Munger?

Everyone who has read Berkshire Hathaway (BRK.A)(BRK.B) shareholder letters would agree that Buffett always talks about his mistakes first before talking about his success. To be able to look at one's mistakes or weakness and talk about it is a great quality. 

From Berkshire's 2008 Annual Letter.

During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise,moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.”

Peter Lynch is one other investor who talks about his mistakes openly.

In the following video Peter Lynch talks about his mistakes of bottom fishing.

http://www.youtube.com/watch?v=f74MweTRICM

Last September I had the privilege to hear Mohnish Pabrai (Trades, Portfolio) talk at his annual meeting.

At the meeting Mohnish wanted to talk about his investment mistakes but he did not have any (Mistakes apparently have reduced to less than a percent with the usage of checklist). 

So he spoke about how his bet on Japenese net-nets in 2010 that did not turn out the way he expected and what lessons he learned from them.

My friend Ning has the full meeting notes here

"Acknowledging what you don’t know is the dawning of wisdom." - Charlie Munger

How Does One Measure Humility?

  • Talking about one's mistakes as well as success.
  • Accepting the fact that success is not by one's own efforts and also crediting others for one's success.
  • Believing in the role of luck, Howard Marks (Trades, Portfolio) latest memo talks extensively about luck.
  • Accepting what you dont know. 

2. Honesty & Integrity
There is a lot to learn from the way all great investors have lived their lives.

The fact that Buffett keeps advocating for a higher taxes to the rich and volunteers himself to pay more is a testimony to his honesty.

The following quotes from Buffett are self explanatory.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - Warren Buffett (Trades, Portfolio)

"Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless," said Buffett in a 1991 hearing in front of the House committee on Energy & Commerce. 

3. Helpful :

"The best thing a human being can do is to help another human being know more." — Charlie Munger

“If you’re in the luckiest one per cent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” ― Warren Buffett (Trades, Portfolio)

We have all benefited immensely from the knowledge that these great investors have shared through interviews, books and videos.

Buffett's Berkshire Annual letter and Oaktree Capital memos are a great source to learn from.

Apart from sharing their knowledge they have also donated money to a lot of philonthropic causes.

Buffett is to donate $37 billion to the Gates Foundation.

Bill Gates (Trades, Portfolio) spends his time and money on the Bill & Melinda Gates Foundation.

What they do:

We work with partner organizations worldwide to tackle critical problems in four program areas. Our Global Development Division works to help the world’s poorest people lift themselves out of hunger and poverty. Our Global Health Division aims to harness advances in science and technology to save lives in developing countries. Our United States Division works to improve U.S. high school and postsecondary education and support vulnerable children and families in Washington State. And our Global Policy & Advocacy Division seeks to build strategic relationships and promote policies that will help advance our work. Our approach to grantmaking in all four areas emphasizes collaboration, innovation, risk-taking, and, most importantly, results.

Mohnish Pabrai (Trades, Portfolio) - Dakshina Foundation  

What they do:

Dakshana is a sanskrit word meaning to give or receive a gift. The Dakshana Foundation is a young philanthropic foundation focused on alleviating poverty. Education is the most powerful and enduring weapon to win the battle against poverty. Thus Dakshana is focused on providing world-class educational opportunities to economically and socially disadvantaged gifted children worldwide. Our initial focus is on providing 1-2 years of world-class IIT-JEE (Joint Entrance Exam) coaching to gifted, but impoverished students in rural India.

Peter Lynch

The Lynches give money primarily in five ways: as an individual, through the Lynch Foundation, through a Fidelity Charitable Gift Fund, and through two charitable trusts.The Lynches have made gifts as individuals, donating $10 million to Peter Lynch's alma mater, Boston College, naming the School of Education after the family.[7] The Lynch Foundation, which had $74 million in assets in 2003, supports education, religious organizations, cultural and historic organizations, and hospitals and medical research.

Source: wikipedia.

Hear Peter Lynch talk about his philanthrophy here

Seth Klarman (Trades, Portfolio) & Jeremy Grantham (Trades, Portfolio)  are also doing a lot of philanthrophy in Boston. Please read here

4. Hard Work

"Go to bed smarter than when you woke up." — Charlie Munger

Hard work is a default quality needed for any field and more so in investing as well. 
All great investors spend numerous hours reading annual reports, magazines and books. 

When asked how to get smarter, Buffett once held up stacks of paper and said he "read 500 pages like this every day. That's how knowledge builds up, like compound interest."

So its no secret that hard work is a prerequisite to achieving great success.

5. Happy & Humorous

Another common thing among all successfull investors is that they are all happy and humrous people.

When I first attended the berkshire hathaway meeting in 2009 I did not know that it was going to be such a fun event. Charlie Munger and  Warren Buffett (Trades, Portfolio) make us laugh as much a they impart knowledge.
I would say Munger is the best of the lot.

Some humrous videos of these great investors.

Bill Gates (Trades, Portfolio) viral video on his gates letter

Buffett & Munger

Bill Gross

Let me end by saying we not only benefit financially by following these great investors but also in learning how to live a meaningful life. We in fact become better citizens and better human beings.


Rating: 3.7/5 (22 votes)

Comments

batbeer2
Batbeer2 premium member - 2 months ago

Thanks for the article.

>> Another common thing among all successfull investors is that they are all happy and humrous people.

Phil Fisher is considered by many to be a succesfull investor. As far as I can tell, he wasn't a very cheerful or helpful guy. Hard-working, honest and humble, yes. Other than that, he may have been the exception to your rule.

 

itzarjuna
Itzarjuna premium member - 2 months ago

Thanks for your comments Batbeer2.

My only exposure to Philip fisher is through his book Common stocks & Uncommon profis.
I've benefited immensely from his scuttlebutt method.

May be you are right about him, I don't know if he was cheerful. Could be he is a exception.

ansgarjohn
Ansgarjohn - 2 months ago

Sardar Biglari doesn't fit this mold either.

itzarjuna
Itzarjuna premium member - 2 months ago

Ansgarjohn, Thnank you , yes there will be some anamolies, we have so many investors its hard to know about everyone. But the rules hold true to most of big Investors though.

ecotycoon
Ecotycoon premium member - 2 months ago

Great article Arjun, you are on the right path to become a great investor too :)

I guess Happiness and giving might be the keys that differentiate the Great investor from the really good investor :) What it’s worth to work hard to be rich if you end being un-happy?

 

"Happiness pursued, eludes; happiness given, returns."

John Marks Templeton (A great investor)

itzarjuna
Itzarjuna premium member - 2 months ago

Thanks Jeff, You are learning stuff faster and at a very early age .. so no doubt you will be great soon .. Agree with you , money only magnifies the traits you already have. Love the quote from Templeton. Thanks for sharing.

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