註: 黃國英亦有在Blog上轉載，但林奇先生有個人評論，更好。
http://hk.myblog.yahoo.com/lynch200705/article?mid=5109
林奇：39歲擁有2500萬美元，股神巴菲特做到了，現在的中國，很多中國人也已經做到了。
79歲，2009年，巴菲特的財富是370億美元。40年，資產上升1480倍，約20%的年複合增長率，看起來說難不難，說易不易。
中國確實有很多人在過去二十多年的時間裡，把其旗下企業做到了每年約20%的年複合增長率。
問題是，中國的投資界，誰是下一個巴菲特？
而這樣每年約20%的年複合增長率，又能否持續多於40年或以上呢？
香港的惠理集團於1993年由葉維義及謝清海成立，資產由成立初時的560萬美元，增至現時達40億美元。而歷經金融海嘯的蹂躪，惠理經營表現較往年遜色，去年收入按年大跌8成，純利亦倒退95%至6660萬港元。而據彭博社數據顯示，截至今年7月22日止，惠理價值基金(A單位)基金資產值約5.94億美元，每單位資產淨值為150.93美元，年初至今回報達48%。
惠理價值基金(A單位)於1993年4月成立起至今年6月24日止回報達13倍。
16年上升了13倍，表現不俗。然而，40年後的惠理價值基金，又是否能媲美股神巴菲特的績效，40年後上升達1480倍嗎？
40年後，我們便可以知道答案了。
各散戶投資者要記住的是，世上股神，只有一人。
什麼四叔五叔六叔七叔八叔，又或亞洲股神，元朗股神，小年股神，美小女股神等等，統統不過是牛鬼蛇神！
你為什麼不能成為巴菲特？
阻礙你成為偉大投資者的七個先天因素
《環球企業家》
2008/02/20
第3-4期
總第150-151期
文：Mark Sellers(馬克•塞勒爾)(對沖基金Sellers Capital Fund創始人，曾在晨星擔任首席股權戰略師，本文為其前年在哈佛所做之演講）
我 即將告訴你們的是：我不是來教你們怎樣成為一個偉大投資者的。相反，我是來告訴你們，為何你們中只有極少人敢奢望成為這樣的人。如果你花了足夠的時間去研 究查理•芒格、沃倫•巴菲特、布魯斯•博克•維茨、比爾•米勒、埃迪•蘭伯特和比爾•阿克曼等投資界巨子，你們就會明白我是什麼意思。
我 知道這裡的每一個人都有超越常人的智力，並且是經過艱苦的努力才達到今天的水平。你們是聰明人中最聰明的人。不過，即便我今天說的其他東西你們都沒聽進 去，至少應該記住一件事：你們幾乎已經沒有機會成為一個偉大的投資者。你們只有非常、非常低的可能性，比如2%，甚至更少。這已經考慮到你們都是高智商且 工作努力的人，並且很快就能從這個國家最頂級的商學院之一拿到MBA學位的事實。如果在座的僅僅是從大量人口中隨機抽取的一個樣本，那麼成為偉大投資者的 可能性將會更小，比如5000分之一。你們會比一般投資者擁有更多優勢，但長期來說你們幾乎沒有機會從人群中脫穎而出。
其原因是，你的智商是多少、看過多少書報雜志、擁有或者在今後的職業中將擁有多少經驗，都不起作用。很多人都有這些素質，但幾乎沒有人在整個職業生涯中使復合回報率達到20%或25%。
我知道有人會不同意這個觀點，我也無意冒犯在座諸位。我不是指著某個人說：「你幾乎沒有機會變得偉大了。」 這個房間中可能會出現一兩個能在職業生涯中實現20%復合回報率的人，但在不了解你們的情況下很難提前斷言那會是誰。
往 好的方面講，雖然你們中的大多數人都無法在職業生涯中達到20%的復合回報率，但你們依然會比普通投資者做得好，因為你們是哈佛的MBA。一個人能學會如 何成為一般級別之上的投資者。如果你們聰明、勤奮又受過教育，就能做得足夠好，在投資界保住一份高薪的好工作。不用成為偉大投資者，你們也可以賺取百萬美 元。通過一年的努力工作、高智商和努力鑽研，你就可以學會在某幾個點上超越平均水平。因此無須為我今天說的話而沮喪，即使不是巴菲特，你們也將會有一份真 正成功且收入不菲的職業。
但是你們不可能永遠以20%的複合回報率讓財富增值，除非你的腦 子在十一、二歲的時候就有某種特質。我不確定這是天生的還是後天習得的，但如果你到青少年時期還沒有這種特質，那麼你就再不會有了。在大腦發育完成之前， 你可能有能力超過其他投資者，也可能沒有。來到哈佛並不會改變這一點，讀完每一本關于投資的書不會，多年的經驗也不會。如果你想成為偉大投資者，那些只是 必要條件，但還遠遠不夠，因為它們都能被競爭對手復制。
作個類比，想想企業界的各種競爭策略吧。我相信你們在這裡已經上過或者將要上戰略課程。你們或許會研習邁克爾·波特的文章和書籍，這是我在進商學院之前就自學過的。我從他的書裡受益匪淺，在分析公司時仍然總會用到這些知識。
現在，作為公司的CEO，什麼樣的優勢才能使你們免受殘酷的競爭？如何找到合適的點來建立起廣泛的巴菲特所說的「經濟護城河」(economic moat)？
如 果技術是你唯一的優勢，那麼它並不是建立「護城河」的資源，因為它是可以、而且最終總是會被複製的。這種情況下，你最好的希望是被收購或者上市，在投資者 認識到你並沒有可持續性優勢之前賣掉所有股份。科技是那種壽命很短的優勢。還有其他的，像一個好的管理團隊、一場鼓動人心的廣告行動，或是一股高熱度的流 行趨勢。這些東西製造的優勢都是暫時的，但它們與時俱變，而且能被競爭者複製。
「經濟護城 河」是一種結構性(structural)的優勢，就像1990年代的西南航空。它深植於公司文化和每一個員工身上，即使每個人都多少知道西南航空做的是 什麼，卻沒有別人能複製。如果你的競爭者知道你的秘密卻不能複製，那就是一種結構性的優勢，就是一條「護城河」。
在我看來，實際只有4種難以複製且能持久的「經濟護城河」。一種是規模經濟，沃爾瑪、寶潔、家得寶就是例子。另一種資源是網絡效應，如eBay、Master Card、VISA或美國運通。
第三種是知識產權，比如專利、商標、政府許可或者客戶忠誠度，Disney、NIKE和Genentech即是此中典範。最後一種是高昂的用戶轉移成本，薪資處理服務公司沛齊（Paychex）和微軟就受益于此，因為用戶轉向其他產品的成本實在高昂。
就像公司要麼建立一條「護城河」，要麼就忍受平庸，投資者也需要一些超越競爭者的優勢，否則他就淪為平庸。
現在有8000多家對衝基金和1萬家共同基金，每天還有數百萬計的個人投資者試圖玩轉股票市場。你們如何比這些人更有優勢？「護城河」由何而來？
首 先，大量閱讀書籍、雜誌、報紙並不是建立「護城河」的資源。任何人都會讀書。閱讀自然無比重要，但不會賦予你高過他人的強勁優勢，只能讓你不落在別人後 面。投資界的人都有大量閱讀的習慣，有的人閱讀量更是超群，但是我不認為投資表現與閱讀數量之間呈正相關關系，你的知識積累達到某個關鍵點後，再多閱讀就 會呈收益遞減效應。事實上，讀太多新聞反而會傷害你的投資表現，因為那說明你開始相信記者們為了報紙銷量而傾瀉的所有廢話。
另 外，任憑你是頂尖學校的MBA，或者擁有注冊金融分析師資格、博士學位、註冊會計師證書等等數十種可能得到的學位和證書，都不可能讓你成為偉大的投資者。 哈佛也無法把你教成這樣的人，西北大學、芝加哥大學、沃頓商學院、斯坦福也不能。我要說的是，MBA是學習如何精確地獲得市場平均回報率的最好途徑。你可 以通過MBA的學習極大地減少前進道路上的錯誤。這經常能使你得到豐厚的薪水，即使你離成為偉大投資者越來越遠。你不可能花錢買到或是通過讀書學習而成為 偉大的投資者。這些都不會讓你建起「護城河」，只是讓你更容易獲得進入這場賭局的邀請而已。
經 驗是另一件被高估的事情。經驗的確很重要，但並不是獲得競爭優勢的資源，它僅僅是另一張必需的入場券。經驗積累到某一點後，其價值就開始收益遞減。如果不 是這樣，那麼60歲、70歲和80歲就應該是所有偉大資金操縱者的黃金時代。我們都知道事實並非如此。因此一定程度的經驗是玩這個遊戲所必需的，但到了一 定時候，它就不再有更多幫助。它不是投資者的經濟「護城河」。查理•芒格說過，你們可以辨別出誰能正確地「理解」，有時那會是一個幾乎沒有投資經驗的人。
因此什麼是投資者必備的競爭優勢呢？就像一個公司或者一個行業，投資者的「護城河」也應該是結構性的。它們與一些心理學因素有關，而心理因素是深植在你的腦子裡的，是你的一部分，即使你閱讀大量相關書籍也無法改變。
我認為，至少有7個特質是偉大投資者的共同特征，是真正的優勢資源，而且是你一旦成年就再無法獲得的。事實上，其中幾個特質甚至絲毫沒有學習的可能，你必須天生具備，若無就此生難尋。
第一個特質是，在他人恐慌時果斷買入股票、而在他人盲目樂觀時賣掉股票的能力。
每 個人都認為自己能做到這一點，但是當1987年10月19日這天到來的時候(歷史上著名的「黑色星期一」)，市場徹底崩潰，幾乎沒人有膽量再買入股票。而 在1999年(次年即是納斯達克大崩盤)，市場幾乎每天都在上揚，你不會允許自己賣掉股票，因為你擔心會落後於他人。絕大多數管理財富的人都有MBA學位 和高智商，讀過很多書。到1999年底，這些人也都確信股票被估值過高，但他們不能允許自己把錢撤離賭台，其原因正是巴菲特所說的「制度性強制 力」(institutional imperative)。
第二個特質是，偉大投資者是那種極度著迷於此遊戲，並有極強獲勝欲的人。
他 們不只是享受投資的樂趣──投資就是他們的生命。他們清晨醒來時，即使還在半夢半醒之間，想到的第一件事情就是他們研究過的股票，或者是他們考慮要賣掉的 股票，又或者是他們的投資組合將面臨的最大風險是什麼以及如何規避它。他們通常在個人生活上會陷入困境，盡管他們也許真的喜歡其他人，也沒有太多的時間與 對方交流。他們的頭腦始終處在雲端，夢想著股票。不幸的是，你們無法學習這種對于某種東西的執迷，這是天生的。如果你沒有這樣的強迫症，你就不可能成為下 一個布魯斯•博克維茨(Fairholme Funds的創始人，選股思路深受巴菲特影響，組合集中、低換手率、很少越界)。
第三個特質是，從過去所犯錯誤中吸取教訓的強烈意願。
這 點對於人們來說是難以做到的，讓偉大投資者脫穎而出的正是這種從自己過去錯誤中學習以避免重犯的強烈渴望。大多數人都會忽略他們曾做過的愚蠢決定，繼續向 前衝。我想用來形容他們的詞就是「壓抑 」(repression)。但是如果你忽略往日的錯誤而不是全面分析它，毫無疑問你在將來的職業生涯中還會犯相似的錯。事實上，即便你確實去分析了，重 復犯錯也是很難避免的。
第四個特質是，基於常識的與生俱來的風險嗅覺。
大 部分人都知道美國長期資本管理公司(1990年代中期的國際四大對沖基金之一，1998年因為俄羅斯金融風暴而瀕臨破產)的故事，一個由六、七十位博士組 成的團隊，擁有最精妙的風險分析模型，卻沒能發現事後看來顯見的問題：他們承擔了過高的風險。他們從不停下來問自己一句：「嗨，雖然電腦認為這樣可行，但 在現實生活中是否真的行得通呢？」這種能力在人類中的常見度也許並不像你認為的那樣高。我相信最優秀的風險控制系統就是常識，但是人們卻仍會習慣聽從電腦 的意見，讓自己安然睡去。他們忽視了常識，我看到這個錯誤在投資界一再上演。
第五個特質是，偉大的投資家都對於他們自己的想法懷有絕對的信心，即使是在面對批評的時候。
巴 菲特堅持不投身瘋狂的網絡熱潮，盡管人們公開批評他忽略科技股。當其他人都放棄了價值投資的時候，巴菲特依然巋然不動。《巴倫週刊》為此把他做成了封面人 物，標題是「沃倫，你哪兒出錯了？」當然，事後這進一步證明了巴菲特的智慧，《巴倫週刊》則變成了完美的反面教材。就個人而言，我很驚訝于大多數投資者對 他們所買股票的信心之微弱。根據凱利公式(Kelly Formula，一個可用於判斷投資和賭博風險的數學公式)，投資組合中的20%可以放在一支股票上，但很多投資人只放2%。從數學上來說，運用凱利公 式，把2%的投資放在一支股票上，相當於賭它只有51%的上漲可能性，49%的可能性是下跌。為何要浪費時間去打這個賭呢？這幫人拿著100萬美元的年 薪，只是去尋找哪些股票有51%的上漲可能性？簡直是有病。
第六個特質是，左右腦都很好用，而不僅僅是開動左腦(左腦擅長數學和組織)。
在 商學院，我曾經遇到過很多天資聰穎的人。不過主修金融的人，寫的東西一文不值，他們也無法創造性地看待問題，對此我頗感震驚。後來我明白了，一些非常聰明 的人只用一半大腦思考，這樣足以讓你在世上立足，可是如果要成為一個和主流人群思考方式不同的富有創新精神的企業投資家，這還遠遠不夠。另一方面，如果你 是右腦佔主導的人，你很可能討厭數學，然後通常就無法進入金融界了。所以金融人士很可能左腦極其發達，我認為這是個問題。我相信一個偉大投資家的兩邊大腦 都發揮作用。作為一個投資家，你需要進行計算，要有邏輯合理的投資理論，這都是你的左腦做的事情。但是你也需要做一些另外的事情，比如根據微妙線索來判斷 該公司的管理團隊。你需要靜下心來，在腦中勾畫出當前情勢的大圖景，而不是往死裡去分析。你要具備幽默感、謙卑的心態和基本常識。還有最重要的，我認為你 也得是一個好的寫作者。看看巴菲特，他是商業世界裡最傑出的寫作者之一，他同時也是古往今來最好的投資家之一絕非偶然。如果你無法清晰地寫作，我認為你也 不能清楚地思考。如果不能清楚地思考，你就會陷入麻煩。很多人擁有天才般的智商，卻不能清楚地思考問題，僅管他們心算就能得出債券或者期權的價格。
最後、最重要的，同時也是最少見的一項特質：在投資過程中，大起大落之中卻絲毫不改投資思路的能力。
這 對於大多數人而言幾乎是不可能做到的。當股票開始下跌，人們很難堅持承受損失而不拋出股票。市場整體下降時，人們很難決定買進更多股票以使成本攤薄，甚至 很難決定將錢再投入股票中。人們不喜歡承受暫時性的痛苦，即便從長遠來看會有更好的收益。很少有投資家能應對高回報率所必須經歷的短期波動。他們將短期波 動等同于風險。這是極不理性的。風險意味著你若押錯了寶，就得賠錢。而相對短時期內的上下波動並不等於損失，因此也不是風險，除非你在市場跌到谷底時陷入 恐慌，被損失嚇得大亂陣腳。但是多數人不會以這種方式看問題，他們的大腦不容許他們這麼想。恐慌本能會入侵，然後切斷正常思考的能力。
我 必須申明，人們一旦步入成年期就無法再學到上述特質。這個時候，你在日後成為卓越投資者的潛力已經被決定了。這種潛力經過鍛鍊可以獲得，但是無法從頭建 立，因為這與你腦組織的結構以及孩童時期的經歷密切相關。這不是說金融教育、閱讀以及投資經驗都不重要。這些很重要，但只能讓你夠資格進入這個遊戲並玩下 去。那些都是可以被任何人複製的東西，而上述7個特質卻不可能。
So You Want To Be The Next Warren Buffett? How's Your Writing?
By Mark Sellers
First of all, I want to thank Daniel Goldberg for asking me to be here today and all of you for actually showing up. I haven't been to Boston in a while but I did live here for a short time in 1991 & 1992 when I attended Berklee School of Music. I was studying to be a jazz piano player but dropped out after a couple semesters to move to Los Angeles and join a band. I was so broke when I lived here that I didn't take advantage of all the things there are to do in Boston, and I didn't have a car to explore New England. I mostly spent 10-12 hours a day holed up in a practice room playing the piano. So whenever I come back to visit Boston, it's like a new city to me.
One thing I will tell you right off the bat: I'm not here to teach you how to be a great investor. On the contrary, I'm here to tell you why very few of you can ever hope to achieve this status.
If you spend enough time studying investors like Charlie Munger, Warren Buffett, Bruce Berkowitz, Bill Miller, Eddie Lampert, Bill Ackman, and people who have been similarly successful in the investment world, you will understand what I mean.
I know that everyone in this room is exceedingly intelligent and you've all worked hard to get where you are. You are the brightest of the bright. And yet, there's one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less. And I'm adjusting for the fact that you all have high IQs and are hard workers and will have an MBA from one of the top business schools in the country soon. If this audience was just a random sample of the population at large, the likelihood of anyone here becoming a great investor later on would be even less, like 1/50th of 1% or something. You all have a lot of advantages over Joe Investor, and yet you have almost no chance of standing out from the crowd over a long period of time.
And the reason is that it doesn’t much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet almost none of them end up compounding at 20% or 25% over their careers.
I know this is a controversial thing to say and I don’t want to offend anyone in the audience. I'm not pointing out anyone specifically and saying "You have almost no chance to be great." There are probably one or two people in this room who will end up compounding money at 20% for their career, but it’s hard to tell in advance who those will be without knowing each of you personally.
On the bright side, although most of you will not be able to compound money at 20% for your entire career, a lot of you will turn out to be good, above average investors because you are a skewed sample, the Harvard MBAs. A person can learn to be an above-average investor. You can learn to do well enough, if you’re smart and hard working and educated, to keep a good, high-paying job in the investment business for your entire
career. You can make millions without being a great investor. You can learn to outperform the averages by a couple points a year through hard work and an aboveaverage IQ and a lot of study. So there is no reason to be discouraged by what I'm saying today. You can have a really successful, lucrative career even if you're not the next Warren Buffett.
But you can't compound money at 20% forever unless you have that hard-wired into your brain from the age of 10 or 11 or 12. I'm not sure if it's nature or nurture, but by the time you're a teenager, if you don't already have it, you can't get it. By the time your brain is developed, you either have the ability to run circles around other investors or you don't. Going to Harvard won't change that and reading every book ever written on investing won't either. Neither will years of experience. All of these things are necessary if you want to become a great investor, but in and of themselves aren't enough because all of them can be duplicated by competitors.
As an analogy, think about competitive strategy in the corporate world. I'm sure all of you have had, or will have, a strategy course while you're here. Maybe you'll study Michael Porter's research and his books, which is what I did on my own before I entered business school. I learned a lot from reading his books and still use it all the time when analyzing companies.
Now, as a CEO of a company, what are the types of advantages that help protect you from the competition? How do you get to the point where you have a wide "economic moat", as Buffett calls it? Well one thing that isn't a source of a moat is technology because that can be duplicated and always will be, eventually, if that's the only advantage you have. Your best hope in a situation like this is to be acquired or go public and sell all your shares before investors realize you don’t have a sustainable advantage. Technology is one type of advantage that's short-lived. There are others, such as a good management team or a catchy advertising campaign or a hot fashion trend. These things produce temporary advantages but they change over time, or can be duplicated by competitors.
An economic moat is a structural thing. It's like Southwest Airlines in the 1990s' it was so deeply ingrained in the company culture, in every employee, that no one could copy it, even though everyone kind of knew how Southwest was doing it. If your competitors know your secret and yet still can't copy it, that’s a structural advantage. That's a moat.
The way I see it, there are really only four sources of economic moats that are hard to duplicate, and thus, long-lasting. One source would be economies of scale and scope. Wal-Mart is an example of this, as is Cintas in the uniform rental business or Procter & Gamble or Home Depot and Lowe's. Another source is the network affect, ala eBay or Mastercard or Visa or American Express. A third would be intellectual property rights,
such as patents, trademarks, regulatory approvals, or customer goodwill. Disney, Nike, or Genentech would be good examples here. A fourth and final type of moat would be high customer switching costs. Paychex and Microsoft are great examples of companies that benefit from high customer switching costs.
These are the only four types of competitive advantages that are durable, because they are very difficult for competitors to duplicate. And just like a company needs to develop a moat or suffer from mediocrity, an investor needs some sort of edge over the competition or he'll suffer from mediocrity.
There are 8000 hedge funds and 10,000 mutual funds and millions of individuals trying to play the stock market every day. How can you get an advantage over all these people?
What are the sources of the moat?
Well, one thing that is not a source is reading a lot of books and magazines and newspapers. Anyone can read a book. Reading is incredibly important, but it won't give you a big advantage over others. It will just allow you to keep up. Everyone reads a lot in this business. Some read more than others, but I don't necessarily think there's a correlation between investment performance and number of books read. Once you reach a certain point in your knowledge base, there are diminishing returns to reading more.
And in fact, reading too much news can actually be detrimental to performance because you start to believe all the crap the journalists pump out to sell more papers. Another thing that won't make you a great investor is an MBA from a top school or a CFA or PhD or CPA or MS or any of the other dozens of possible degrees and
designations you can obtain. Harvard can't teach you to be a great investor. Neither can my alma mater, Northwestern University, or Chicago, or Wharton, or Stanford. I like to say that an MBA is the best way to learn how to exactly, precisely, equal the market return. You can reduce your tracking error dramatically by getting an MBA. This often results in a big paycheck even though it's the antithesis of what a great investor does.
You can't buy or study your way to being a great investor. These things won't give you a moat. They are simply things that make it easier to get invited into the poker game.
Experience is another over-rated thing. I mean, it's incredibly important, but it's not a source of competitive advantage. It's another thing that is just required for admission. At some point the value of experience reaches the point of diminishing returns. If that wasn't true, all the great money managers would have their best years in their 60s and 70s and 80s, and we know that’s not true. So some level of experience is necessary to play the game, but at some point, it doesn't help any more and in any event, it's not a source of an
economic moat for an investor. Charlie Munger talks about this when he says you can recognize when someone "gets it" right away, and sometimes it's someone who has almost no investing experience.
So what are the sources of competitive advantage for an investor? Just as with a company or an industry, the moats for investors are structural. They have to do with psychology, and psychology is hard wired into your brain. It's a part of you. You can't do much to change it even if you read a lot of books on the subject.
The way I see it, there are at least seven traits great investors share that are true sources of advantage because they can't be learned once a person reaches adulthood. In fact, some of them can't be learned at all; you're either born with them or you aren't.
Trait #1 is the ability to buy stocks while others are panicking and sell stocks while others are euphoric. Everyone thinks they can do this, but then when October 19, 1987 comes around and the market is crashing all around you, almost no one has the stomach to buy.
When the year 1999 comes around and the market is going up almost every day, you can't bring yourself to sell because if you do, you may fall behind your peers. The vast majority of the people who manage money have MBAs and high IQs and have read a lot of books. By late 1999, all these people knew with great certainty that stocks were overvalued, and yet they couldn't bring themselves to take money off the table because of
the "institutional imperative," as Buffett calls it.
The second character trait of a great investor is that he is obsessive about playing the game and wanting to win. These people don’t just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they're still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they're going to neutralize that risk. They often have a hard time with personal relationships because, though they may truly enjoy other people, they don't always give them much time. Their head is always in the clouds, dreaming about stocks. Unfortunately, you can't learn to be obsessive about something. You either are, or you aren't. And if you aren't, you can't be the next Bruce Berkowitz.
A third trait is the willingness to learn from past mistakes. The thing that is so hard for people and what sets some investors apart is an intense desire to learn from their own mistakes so they can avoid repeating them. Most people would much rather just move on and ignore the dumb things they've done in the past. I believe the term for this is "repression." But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your career. And in fact, even if you do analyze them it's tough to avoid repeating the same mistakes.
A fourth trait is an inherent sense of risk based on common sense. Most people know the story of Long Term Capital Management, where a team of 60 or 70 PhDs with sophisticated risk models failed to realize what, in retrospect, seemed obvious: they were dramatically overleveraged. They never stepped back and said to themselves, "Hey, even though the computer says this is ok, does it really make sense in real life?" The ability to do this is not as prevalent among human beings as you might think. I believe the greatest risk control is common sense, but people fall into the habit of sleeping well at night because the computer says they should. They ignore common sense, a mistake I see repeated over and over in the investment world.
Trait #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. Buffett never get into the dot-com mania thought he was being criticized publicly for ignoring technology stocks. He stuck to his guns when everyone else was abandoning the value investing ship and Barron’s was publishing a picture of him on the cover with the headline "What's Wrong, Warren?" Of course, it worked out brilliantly for him and made Barron's look like a perfect contrary indicator.
Personally, I'm amazed at how little conviction most investors have in the stocks they buy. Instead of putting 20% of their portfolio into a stock, as the Kelly Formula might say to do, they'll put 2% into it. Mathematically, using the Kelly Formula, it can be shown that a 2% position is the equivalent of betting on a stock has only a 51% chance of going up, and a 49% chance of going down. Why would you waste your time even making that
bet? These guys are getting paid $1 million a year to identify stocks with a 51% chance of going up? It's insane.
Sixth, it's important to have both sides of your brain working, not just the left side (the side that's good at math and organization.) In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn't write worth a damn and had a hard time coming up with inventive ways to look at a problem. I was a little shocked at this. I later learned that some really smart people have only one side of their brains working, and that is enough to do very well in the world but not enough to be an entrepreneurial investor who thinks differently from the masses. On the other hand, if the right side of your brain is dominant, you probably loath math and therefore you don't often find these people in the world of finance to begin with. So finance people tend to be very left-brain oriented and I think that's a problem. I believe a great investor needs to have both sides turned on. As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off. You need to be able to step back and take a big picture view of certain situations rather than analyzing them to death. You need to have a sense of humor and humility and common sense. And most important, I believe you need to be a good writer. Look at Buffett; he's one of the best writers ever in the business world. It's not a coincidence that he’s also one of the best investors of all time. If you can’t write clearly, it is my opinion that you don't think very clearly. And if you don't think clearly, you’re in trouble. There are a lot of people who have genius IQs who can't think clearly, though they can figure out bond or option pricing in their heads.
And finally the most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down. People don't like shortterm pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss.
But most people just can't see it that way; their brains won’t let them. Their panic instinct steps in and shuts down the normal brain function. I would argue that none of these traits can be learned once a person reaches adulthood.
By that time, your potential to be an outstanding investor later in life has already been determined. It can be honed, but not developed from scratch because it mostly has to do with the way your brain is wired and experiences you have as a child. That doesn’t mean financial education and reading and investing experience aren’t important. Those are critical just to get into the game and keep playing. But those things can be copied by anyone. The seven traits above can’t be.
Ok, I know that's a lot of information and I want to leave time for questions so I'll stop there.
Copyright, Mark Sellers, 2007
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