Buffett and Munger's Attributes of Successful Investors

It's not about how smart you are

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May 03, 2019
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Are great investors born great, or do they make themselves so? During the question-and-answer session of Berkshire Hathaway’s (BRK.A, Financial)(BRK.B, Financial) annual shareholder meeting in 2002, Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) were asked whether they agreed with the idea that great investors are made, rather than born. Their answers provide some valuable insight into the question of what attributes successful investors must possess.

Intelligence doesn’t matter

To start, Buffett said:

“I don’t know to what extent an ability to detach yourself from the crowd is innate or learned, but that’s a quality you need. I would agree totally that a great IQ is not needed. You do not need to be terrifically smart to do well as an investor at all. I learned from [Ben] Graham first in a very, very big way, and I learned something additionally from Phil Fisher and I learned a lot from Charlie… [Early on] I read every book there was on investments and I didn’t do well at all, and I had no real investment philosophy. I had a lot of things I tried. I was having a lot of fun, but I wasn’t making any money.”

Buffett went on to say that when he finally came across Benjamin Graham’s works in the late 1940s and understood that buying stocks was equivalent to buying part of a business, things began to really click for him. One does not need to be exceptionally intelligent to understand this simple precept. For Buffett, success in investing comes down to having the right philosophy, rather than being intelligent. There are, however, other factors that make a successful investor; namely, having the right psychological makeup:

“You have to be realistic, you have to 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 definitely requires discipline, it requires insulating yourself from popular opinion. You can’t pay any attention to it, it doesn’t mean anything.”

To this, Munger added:

“If you have a passionate interest in knowing why things are happening, you always are trying to figure out the world in terms of ‘why is this happening?’ or ‘why is this not happening?’, 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, you are destined probably for failure, even if you have a really high IQ.”

In other words, a strong work ethic and a genuine desire to self-improve and educate yourself and deepen (as opposed to widen) your circle of competence matters far more than intelligence. Nothing in a financial statement requires any mathematical ability beyond that of an eighth grader. It is how diligent you are in reading it and how good you are at connecting the dots between the various facts that will determine success or failure in the investment game.

Disclosure: The author owns no stocks mentioned.

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