5 Successful Qualities of Buffett, Graham, Munger and How to Acquire Them
Successful investors are not the smartest people on earth.
Remember, it was Warren Buffett who said that;
You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.
However, there are certain characteristics that you need to have in order to be successful.
While reading up on the background of gurus, we’ve collected and organized certain traits.
Here they are.
Characteristic Traits of Successful Investors and Tips on How to Acquire Them
- Leadership – Buffett’s staff is made of 24 people strong. It’s not many, but these are authentic and loyal people who Buffett trusts. It’s proof that as a leader, he knows how to surround himself with capable and trustworthy people.
- Thirst for knowledge – Ask Buffett how you can get smarter. Read. Read a lot. “I just sit in my office and read all day.”
- Patience – “The Stock Market is designed to transfer money from the Active to the Patient.”
- Free-thinking – There are times when we want to form our opinions based on other people’s insight. Buffett is someone who values forming his own opinion based on facts and his own thoughts.
- Frugality – People think that frugality is about saving your money to buy only the essentials. Frugality for Buffett is more behavioral. It is about mastering your impulses to dive into what seems easy and comfortable.
- Integrity – Buffett has been working with Munger for around 54 years now. That’s a testament to Munger’s honesty, integrity, and authenticity. This is important for an investor indirectly, as integrity is also about facing problems out in the open.
- Humility – In the sense that you should have good metacognitive skills. A lot of people lack this skill to actually recognize and admit the things they don’t understand. So they continue to believe facts when what are completely false. You need humility to accept that there are many things in this world that you just don’t understand yet and the willingness to pursue that knowledge.
- Adaptive – Munger has been dubbed as an expert generalist. Being such makes one always quick to adapt to any change. It’s Munger’s philosophy to replace an idea if a better one comes along. He doesn’t set anything in stone because mostly everything changes and that includes our own ideas and what we believe.
- Analytical – Read this quote from Munger: “What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience ‑ both vicarious and direct ‑ on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered.”
- Focus – Here’s Munger again with a sweet but short quip: “A majority of life’s errors are caused by forgetting what one is really trying to do.”
- Perfectionism – “The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor.”
- Common sense – Graham invented the concept of margin of safety. It’s really nothing more than common sense investing for him. He wasn’t reinventing the wheel or coming up with new concepts to wow the investment world. Just good ol’ common sense.
- Industrious – “The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor.”
- Risk Management – Most people are careful with their money – until they get into the stock market. Although Graham wrote about diversifying, I believe that the underlying focus was on managing risk with proper allocation. Whether it be on bonds, smaller positions or just really understanding what you were buying, he placed heavy emphasis on managing risk and not falling prey to speculative bets and going all in.
- Controlling Emotions – What better way to gift the investment world than by introducing Mr Market. The whole point is to understand not to become a slave to stock prices. Mr. Market is your servant, not your master.
You can read about Walter Schloss’ strategy and how he achieved towering returns. But here are his 5 characteristics.
- Resilience – Schloss lived through 17 recessions and yet he was able to rise above everything and is in the history books of value investing. He didn’t have a college degree or a computer to manipulate. Despite what the market threw at him, he stuck with his fundamental principles and didn’t let external factor sway him.
- Simplicity – “We buy cheap stocks”. That was his motto. He didn’t bother with complicated scenarios, yet he is labeled as a super-investor. He kept things simple and bought stocks below book value. A simple approach to a 16% CAGR return for his partnership.
- Outlier – He took Graham’s characteristic to heart in that he was a machine in controlling his emotions. He was not a slave to Mr Market’s lure of stock prices and earnings reports.
- Integrity – Dubbed as “One of the good guys of Wall Street”, here’s what Buffett said about him. “He had an extraordinary investment record, but even more important, he set an example for integrity in investment management. Walter never made a dime off of his investors unless they themselves made significant money. He charged no fixed fee at all and merely shared in their profits. His fiduciary sense was every bit the equal of his investment skills.”
- Knowledge of self – When Schloss was praised as being more of a Buffett qualitative investor, he answered “I’m more in the Tweedy Browne side. Warren is brilliant, there’s nobody ever been like him and there never will be anybody like him. But we cannot be like him. You’ve got to satisfy yourself on what you want to do.”
- Passionate – Lynch worked almost round-the-clock. He’ll work about 6 to 7 days every week. The primary reason is that he is very hands-on. He was known to own 1,400 stocks in his portfolio but only employed two assistants back when he managed the Fidelity Magellan fund.
- Competence – Lynch’s famous principle is to invest in what you know. If he has invested in 1400 stocks at one time, then it is not overreaching to say that he probably encountered a majority of the stocks throughout his life journey. Instead of chasing companies and industries you don’t know, it’s easier and better to stick with something you understand.
- Long-term Thinker -“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
- Diligence – Lynch’s work ethic is undeniable. His drive is tenacious. Although, he doesn’t seem to think that investing should be fun. “Investing is fun, exciting, and dangerous if you don’t do any work.” This is why you aren’t going to be popular talking about value investing at work. People want the highs and the thrill of hot stocks.
- Curiosity – One of my favorite quotes. “The person that turns over the most rocks wins the game. And that’s always been my philosophy.”
Bonus: 7 Successful Investors Traits to Be the Next Warren Buffett
It’s titled So You Want to Be the Next Warren Buffett and discusses 7 traits you need to be different.
We’ve previously written a brief summary on this great speech, and here are the 7 points for you to ponder on.
Trait #1 – Ability to buy and sell stocks against the market
Trait #2 – Obsession
Trait #3 – Willingness to learn from past mistakes
Trait #4 – Inherent sense of risk based on common sense
Trait #5 – Confidence and Conviction
Trait #6 – Get both sides of your brain working
Trait #7 – Ability to live through volatility
I’ve covered the traits based on these super investors, but let’s end with some inverted thinking.
What are some things that are never mentioned?
- You have to be born smart
- You need an MBA degree
- Go after complex investments
- Listen to big and smart money without question because they must know more than you
- Investing is easy
- Graham Papers