Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
No doubt most of us are familiar with the above quote from Mr. Buffett. Probably most of us, as value investors, also think that we possess the temperament to control the urges. However, does our perception reflect the reality? How can we tell if we have the right temperament or not for investing? How do we define the right temperament?
Things can get complicated once we start asking ourselves these questions. Luckily, following Munger’s idea of simplicity, I think we can greatly simplify the problem by observing who has the right temperament and figure out their personality type through a well-known system. We can then figure out our own personality type and compare ours with those of say Buffett and Munger.
Let me again clarify that this is not a perfect approach but in my opinion a good enough one nevertheless. There is a good chance that we can be roughly right following this approach.
The aforementioned well-known system is called the Myers-Briggs Type Indicator (MBTI) assessment. According to Wikipedia, it is a “psychometric questionnaire designed to measure psychological preferences in how people perceive the world and make decisions.”
Essentially there are four dichotomies of psychological differences with a resulting of 16 possible psychological types. The four dichotomies are
- Extroversion (E) versus Introversion (I)
- Sensing (S) versus Intuition (N)
- Thinking (T) versus Feeling (F)
- Judging (J) versus Perception (P)
Each person’s type will be typically referred to by an abbreviation of four letters such as ESTJ or INFP. Each term used for each dichotomy has specific technical meanings and each combination of 4 (i.e. each type) has its own distinctive set of characteristics. For instance, “sensing and intuition are the information gathering (perceiving) functions. They describe how information is understood and interpreted. Individuals who prefer sensing are more likely to trust information that is in the present, tangible, and concrete and they tend to distrust hunches. On the other hand, those who prefer intuition tend to trust information that is more abstract or theoretical, that can be associated with other information. They may be more interested in future possibilities. ”
I encourage readers to get familiar with the system before proceeding.
Assuming the MBIT system is a good enough one for the discussion of temperament, let’s see if we know what type of person Buffett and Munger are. A little bit of google search combined with our observation and experience show that Buffett is most likely an ISTJ type while Munger is more likely an INTJ type. Below are the descriptions of these two types from truity.com:
ISTJ in a Nutshell
ISTJs are responsible organizers, driven to create and enforce order within systems and institutions. They are neat and orderly, inside and out, and tend to have a procedure for everything they do. Reliable and dutiful, ISTJs want to uphold tradition and follow regulations.
ISTJs are steady, productive contributors. Although they are Introverted, ISTJs are rarely isolated; typical ISTJs know just where they belong in life, and want to understand how they can participate in established organizations and systems. They concern themselves with maintaing the social order and making sure that standards are met.
What Makes the ISTJ Tick
ISTJs like to know what the rules of the game are, valuing predictability more than imagination. They rely on their past experience to guide them, and are most comfortable in familiar surroundings. ISTJs trust the proven method, and appreciate the value of dedicated practice to build confidence in their skills.
ISTJs are hardworking and will persist until a task is done. They are logical and methodical, and often enjoy tasks that require them to use step-by-step reasoning to solve a problem. They are meticulous in their attention to details, and examine things closely to be sure they are correct. With their straightforward logic and orientation to detail, ISTJs work systematically to bring order to their own small parts of the world.
Recognizing an ISTJ
ISTJs have a serious, conservative air about them. They want to know and follow the rules of the game, and typically seek out predictable surroundings where they understand their role. You may find the ISTJ doing something useful even in social situations (for instance, organizing coats and hats at a party) as they’re often more comfortable taking charge of a task than they are chatting up strangers. When given something to do, they are highly dependable, and follow it through to the end.
INTJ in a Nutshell
INTJs are analytical problem-solvers, eager to improve systems and processes with their innovative ideas. They have a talent for seeing possibilities for improvement, whether at work, at home, or in themselves.
Often intellectual, INTJs enjoy logical reasoning and complex problem-solving. They approach life by analyzing the theory behind what they see, and are typically focused inward, on their own thoughtful study of the world around them. INTJs are drawn to logical systems and are much less comfortable with the unpredictable nature of other people and their emotions. They are typically independent and selective about their relationships, preferring to associate with people who they find intellectually stimulating.
What Makes the INTJ Tick
INTJs are perceptive about systems and strategy, and often understand the world as a chess board to be navigated. They want to understand how systems work, and how events proceed: the INTJ often has a unique ability to foresee logical outcomes. They enjoy applying themselves to a project or idea in depth, and putting in concentrated effort to achieve their goals.
INTJs have a hunger for knowledge and strive to constantly increase their competence; they are often perfectionists with extremely high standards of performance for themselves and others. They tend to have a keen interest in self-improvement and are lifelong learners, always looking to add to their base of information and awareness.
Recognizing an INTJ
INTJs are typically reserved and serious, and seem to spend a lot of time thinking. They are curious about the world around them and often want to know the principle behind what they see. They thoroughly examine the information they receive, and if asked a question, will typically consider it at length before presenting a careful, complex answer. INTJs think critically and clearly, and often have an idea about how to do something more efficiently. They can be blunt in their presentation, and often communicate in terms of the larger strategy, leaving out the details.
Although INTJs aren’t usually warm or particularly gregarious, they tend to have a self-assured manner with people based on their own security in their intelligence. They relate their ideas with confidence, and once they have arrived at a conclusion they fully expect others to see the wisdom in their perceptions. They are typically perfectionists and appreciate an environment of intellectual challenge. They enjoy discussing interesting ideas, and may get themselves into trouble because of their take-no-prisoners attitude: if someone’s beliefs don’t make logical sense, the Mastermind typically has no qualms about pointing that out.
The description may not fit perfectly with Buffett and Munger but I think we can all agree that they are fairly close. Munger and Buffett both share ITJ, which are introversion, thinking and judging. Just for a fun trivia, Bill Gates (Trades, Portfolio) is also an INTJ type.
Out of curiosity, I did my own assessments on different websites (you may get different results based on the questionnaire set) and got INFJ. This tells me that I may have let my feelings get in the way of my decision making more often than I thought. Therefore, I should be careful when making investment decisions and pay special attention to my emotions.
A good amount of readers on this forum should be this IXXJ pattern. It’s the F or T that should make the alarm sound for those of us who have more “F” than “T” in our types.
Again, the point of this exercise is not to say which personality type is better or worse. My educated guess is that if you have a personality type if IXTJ, you are likely to possess the right temperament for value investing. But if you don’t, that doesn’t’ mean you don’t have the temperament or you won’t achieve superior returns. You just need to be more cautious of the weaknesses in your personality type that may lead to investment mistakes.
I fully understand this article could be very controversial and provocative. I welcome all discussions and comments.