Back in 1998, Charlie Munger (Trades, Portfolio) was reportedly asked, "How do you learn to be a great investor?" when chairing a Wesco annual meeting. This is undoubtedly a broad question with no single answer.
But Munger did his best to answer in his usual highly informative and measured way.
Step one
The first stage is to understand what sort of investor you are. Value investing isn't for everyone; it requires a particular type of person who is willing to wait years without making any trading decisions.
The same can be said for growth investing. Growth investors need to be highly active individuals, always looking for the next investment opportunity.
So, the first step on the road to becoming a good investor is to understand your weaknesses and strengths, and then build a strategy around them. As Munger said:
"Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable-and some losses are inevitable-you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you."
Start reading
Once you know and understand your own nature, the next stage is to gather information.
Unfortunately, if you are looking for a shortcut, there isn't one. If you want to become a good investor, gathering information requires time and effort -- it is not going to happen overnight:
"I think both Warren and I learn more from the great business magazines than we do anywhere else ... It’s such an easy, shorthand way of getting a vast variety of business experience just to riffle through issue after issue covering a great variety of businesses. And if you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom about investing. I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you."
Having said the above, Munger went on to note that while you should constantly be reading to trying and find the next opportunity, you should not be reading randomly. "Do not," Munger said, "just collect endless data and then only later do you try to make sense of it." You have to start with some ideas about reality (mental models) and then look to see if what you're learning "fits with proven basic concepts."
Reading constantly is required to understand what makes companies tick, why some companies perform better than others and why some stocks are beating the market, while others have collapsed. As Munger said, frequently you will look at a business that is having a fantastic run, but the critical question you need to ask yourself is, "How long can this continue?"
In an isolated environment, without having a broad understanding of the sector the company operates within, and the general market sentiment, you have no chance of being able to provide an informed answer to this question.
No easy route
I said earlier that answering the question, "How do you learn to be a great investor?" has no single answer. There is no easy route to investment success, mainly because there is no right or wrong way to be an investor.
The investments you choose, and strategy you decide to follow, entirely depends on your personality and preference. From there on out, your success will be defined by the amount of work put into finding new stocks and keeping track of existing investments. After all, if being a good investor was easy, the returns wouldn't be worthwhile.
Disclosure: The author owns no stock mentioned.
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