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Stepan Lavrouk
Stepan Lavrouk
Articles (392) 

Buffett and Munger: Cultivate Curiosity and Mental Discipline

Insulate yourself from the opinions of others

November 22, 2019 | About:

Are great investors born or are they made? Most of us would like to believe the answer is the latter. If you can coach yourself and mold your mind in the image of great investors, then perhaps you will have a better chance of replicating some of their results. At the 2002 Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) shareholder meeting, Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) offered their thoughts on the importance of critical thinking and the cultivation of mental discipline for investors.

Know your own mind

Buffett laid out some of the basic building blocks of the investing mindset. Having an independent mind, being realistic about your strengths and weaknesses and a healthy interest in the monetary side of investing are all important to him:

“I don’t know to what extent the ability to detach yourself from the crowd is innate or learned, but that’s a quality you need. I would agree that a great IQ is not needed - you do not have to be terrifically smart to do well as an investor at all. And you have to be realistic, define your circle of competence accurately, you have to know what you don’t know and not get enticed by it. You have to have an interest in money, I think, or you won’t be good at investing, but if you’re very greedy, it'll be a disaster because that will overcome rationality.”

It’s notable that he does not think investors need to be very intelligent to succeed. While I agree with the spirit of this statement, I believe it can be further refined. Investors do not need to have what are sometimes called "book smarts" - you don’t need to have a degree in higher mathematics, or to have studied at a prestigious university. But you do need to have a high degree of common sense to be a good investor. If you don’t have a logical brain, then it is unlikely that you will be successful as a value investor.

Incidentally, I think this is evidence of how limited the concept of IQ is - it measures competence in a very narrow domain, whilst downplaying the importance of things like emotional intelligence, common-sense thinking and "street smarts." This is a point that Munger alluded to later on in the meeting:

“If you have a passionate interest in knowing why things are happening, you’re always trying to think in terms of 'why is this happening?' then that cast of mind, kept over long periods, gradually improves your ability to cope with reality. And if you don’t have that cast of mind, I think you’re destined probably for failure, even if you’ve got a pretty high IQ.”

Critical thinking is obviously very important, but so is independent thinking. Although there are many benefits to the internet and the increased connectivity that all of us experience, one of the drawbacks of social media is that it has a tendency to flood our mental bandwidth with many opinions, all of which compete for our attention. What to do about this torrent of data? Buffett’s advice is to ignore it:

“[Investing] is not a complicated process, but it definitely requires discipline. It requires insulating yourself from popular opinion - you simply cannot pay any attention to it - it doesn’t mean anything. The idea of listening to lots of people tell you things - it’s just a waste of time, and you’d be better off just sitting and thinking a little bit.”

Social media obviously did not exist in 2002, but I believe this advice becomes more prescient with each passing year, as it becomes easier and easier to immerse oneself in groupthink and sources that do nothing to disrupt our biases. Sometimes, the best course of action is to put your phone down and think a little bit.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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