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Rupert Hargreaves
Rupert Hargreaves
Articles (1365)  | Author's Website |

Warren Buffett on the Mindset Required to Be a Good Investor

Buffett's tips on the best investor traits needed to get ahead in the market

To be a successful investor, you need to pick the right stocks. It would be best if you also had the right mindset. This second point is often overlooked. The best-performing stocks of the past few decades have not been easy investments.

Even if you had managed to pick up Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) in the early 1990s, staying with the businesses through their early troubles and then holding on through both the dot-com and financial crisis declines would have required a huge amount of willpower.

In addition, it would have been difficult to ignore the analysts who advised selling the stocks. In the years after the financial crisis, Amazon's lack of profitability was frequently cited as a reason to sell the company.

Building the right mindset to be an investor is just as important as developing the accounting knowledge required to differentiate between strong and weak businesses. Some people have it, and some people don't.

Warren Buffett (Trades, Portfolio) once said that to be a good investor, you need to have a natural business interest. An investor who has a natural interest in business is always looking for the next opportunity and enjoys investigating companies' sectors and industries. For them, sitting down to read an annual report is not a chore.

At the 2005 Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting, Buffett told his audience that he believed the best way to build the knowledge required to become a good investor is to "read everything in sight." This only works if one is interested in the reading material. As the Oracle of Omaha went on to explain, having the right temperament is far more critical than having a high IQ in this business:

"I mean there are no secrets in this business that only the priesthood knows... It's all out there in black and white. It's a simple business...It requires qualities of temperament way more than it requires qualities of intellect. I mean, if you've got more than 125 IQ, you can throw away the rest of the points or give them to your other members of the family or do something because you don't need it in investing. But you do need a certain temperament that enables you to think for yourself.

And then you have to develop a framework — and I developed it from reading Ben Graham, I didn't come up with it myself — very simple framework. And then you have to look for opportunities that fit within that framework as you go through life, and you can't do something every day. You know, you can learn every day, but you can't act every day...

And if you enjoy the game, you know, you'll find that like playing bridge or playing baseball or whatever, if you don't enjoy it you probably won't do well on it."

All too often, beginner investors (myself included) think they can learn everything about investing by reading a few books and following a template. That is just not the case. Highly successful investors like Buffett are always constantly learning and adapting their investment strategies to the ever-changing business environment. The world is ever-changing and developing, and the only way to keep up with the competition is to continually learn and develop your own strategy.

Unfortunately, there's no shortcut to this process. It requires time and effort to build the initial skills and framework necessary. From there, more time and effort is required to keep the skills fresh, knowledge up-to-date, and find new opportunities.

If one is not interested in pursuing this level of effort, it may be better to outsource the investment process entirely. Hiring a manager might be costly, but the overall cost may end up being significantly less than the losses incurred due to a lack of research.

Disclosure: The author owns shares in Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 4.5/5 (2 votes)

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sf_tsai
Sf_tsai - 2 months ago    Report SPAM

Indeed, the right temperament with patience & persistence is very powerful; Inaction is an action that requires hard work like slowly grinding and eventually will be shined.

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