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The Stubborn Student

|Includes: Berkshire Hathaway A (BRK.A), BRK.B

Summary

Personality has a big impact on investment approach and success.

There are many ways to make money and different personalities can find success by pursuing different strategies.

But there are some universal personality traits that all successful investors seem to possess.

Two of which, being stubborn and having an unquenchable thirst for knowledge, seem to contradict each other in some ways.

They are both important and certain investors seem to embody them, making for some very interesting people. Charlie Munger is one of them.

Investing is a fascinating discipline because it is one of the only things one can truly teach oneself and largely must teach oneself. This is becoming easier and easier with the rise of technology and increased information accessibility, but as they say, the more things change, the more they stay the same. While perhaps the world will evolve toward passive and computer driven strategies from the current fundamental analysis landscape, possibly making certain attributes like a technical background and probability mindset more important than being interested in business and investigative reporter-like skills, I think many of the basic personality traits needed to be a successful investor have not changed over time and never will change. While personality does change over time - people generally become more emotionally stable, less open-minded, and less motivated with age - a lot of personality is determined by the hand we as individuals were dealt - the "genetic lottery" as Buffett calls it. A lot of this can't be learned, which is distinctly unlike the rest of the investing discipline which can. This makes it worth considering and some introspection. Surely any aspiring investor should occasionally wonder, "am I cut out for this?" This article will explore various thoughts on this very important topic: Personality in Investing.

The Contradiction

Successful investors are always throwing out gobbledygook about "the most important thing in investing" and what kind of personality is needed. Anyone that's seen a lot of this will note that a lot of it contradicts each other. Part of that is because there are many different ways to make money that work and the different styles demand different personality traits. But there are also some contradictions inherent in all successful investors' personalities. And if you think about it, contradictions are pretty fundamental to business and even human nature. Look at any corporate mission statement. Businesses and the people that run them feel they have this moral responsibility to create societal value, "put the customer first", etc. while also possessing a basic, motivating greed or "self-interest," the desire to make a buck in a very transactional, heads-I-win, tails-you-lose kind of way. Contradictions are messy. They create cognitive dissonance and make it hard to figure out what to optimize. But being messy does not mean we shouldn't explore them.

Stubborn

You need to balance arrogance and humility…when you buy anything, it's an arrogant act. You are saying the markets are gyrating and somebody wants to sell this to me and I know more than everybody else so I am going to stand here and buy it. I am going to pay an 1/8th more than the next guy wants to pay and buy it. That's arrogant. And you need the humility to say 'but I might be wrong.' And you have to do that on everything - Seth Klarman

As Terrier Investing astutely asserted:

the best investment strategy is….

WHICHEVER REASONABLY VALID ONE YOU CAN CONFIDENTLY EXECUTE EFFECTIVELY OVER THE LONG TERM.

There are plenty of ways to make money. Plenty of approaches work. The fact that Warren Buffett and Jim Simons are both billionaires and have incredible track records is anecdotal evidence of that. For the empiricists out there, consider that two seemingly antithetical quantitative criteria, cheap stocks (stocks trading at low valuation metrics) and momentum stocks (stocks that have risen the most recently), both are strongly predictive of future security outperformance. Some may argue that these aren't necessarily mutually-exclusive - you could buy a stock that's risen a lot recently AND trades very cheaply some asset managers certainly do such as O Shaughnessy Asset Management - but the point is that you won't find too many investors looking for stocks that fit both of these criteria.

However, in order to make money using any approach, you absolutely must stick to it. I think this is much more difficult than people appreciate. Consider that over the course of a 50 year investment career, you will experience wars, regulatory changes, like 7-8 business cycles, down years big investments and redemptions, the development of new investment approaches and the technology enabling it, and so on, all the while sticking to your guns, ignoring all of it, and doing the same basic thing every day. We can talk about how that requires all kinds of traditionally admirable, marketing-friendly qualities like:

  • Determination
  • Focus
  • Resolve
  • Independent-Thinking

But what it really demands is that the investor be stubborn and have a bit of an ego. A bit of ideology. Walter Schloss is my favorite example of this. He had a ~50 year career of >20% gross returns and it seems to me that he did the same basic thing throughout. He bought cheap stocks. Originally that was defined as net-nets, but eventually he settled for stocks trading at discounts to book value. This wasn't because of some epiphany - net-nets of meaningful size just disappeared from the market.

In Buffett's famous article The Superinvestors of Graham-and-Doddsville, he profiled Schloss as one of his superinvestors and said the following about him:

He owns many more stocks than I do- and is far less interested in the underlying nature of the business; I don't seem to have very much influence over Walter. That's one of his strengths: no one has much influence on him.

Schloss preached the same basic message throughout his career: we buy cheap stocks. And he always idolized and frequently referenced Ben Graham. Schloss never went to college, he just took Graham's investing class and worked for him for a few years, so Graham's was the only real "investing theory" Schloss was exposed to in his early, formative years. I think this played a role and I also think he was not an off-the-charts-IQ kind of person. Smart for sure, but he was not so intelligent that he'd get bored of executing an investment approach after figuring out that it worked, as Graham arguably was.

Student

At the same time, I think investors also need to have an unquenchable thirst for knowledge. To make good investment decisions, you need good information, and it is a humble act to pick up a book, filing, or the phone. You are silently saying "I don't know this yet; I am unenlightened. But I'd like to know, so I will make the effort to find out. Perhaps someone else out there knows what I don't and I can learn from them, directly, through their writings, or by observing their decisions and actions."

Since at least the time of Socrates and Plato, the teacher has held a position of dominance over the student, like old over young, and parent over child. Learning and taking in information is a humbling act, especially when it is self-directed as learning investing on your own often is (you're not being "forced" to go to class) because you are intentionally assuming the inferior position.

There is a phrase "tabula rasa" meaning clean slate. The best learners have fewer filters against new information as it is taken in. They actually take a thoughtful, objective look at the argument's (if it is an argument) premises and implications, rather than using simple, mindless, associative filters to toss it out as junk or emphatically embrace it.

Soon after I first discovered investing, I remember thinking it was incredible that Warren Buffett, this guy who is in his 80s and one of the richest men in the world who many would vote for as the greatest investor of our time, still spends the majority of his time reading and preaches stuff like this:

The Stubborn Student

So it is that the best investors have a combination of these seemingly opposing, contradictory attributes. I've often thought: who best embodies the personality traits needed to be a successful investor? I think the answer is Charlie Munger:

Munger is a real cynic. He is very skeptical of much of the information out there, and while he has said in strong words that ideology is like poison for the brain because it closes it to new information, going so far as to criticize Buffett's father, who was a fierce political conservative, one gets the sense reading Poor Charlie s Almanack and watching Munger at Berkshire's (BRK.A, BRK.B) annual meeting, that he is a bit ideological. His general skepticism, desire to preach, and the consistency with which he says many things like the contents of his 25 Standard Causes of Human Misjudgment, are good indicators of this.

And yet, he's spent virtually his entire 92 years on this earth reading constantly, is a total polymath (knows a lot about a lot of things), and has changed professions (he used to be a lawyer). His mental models where he's pulled information from one discipline and applied it to another, is a demonstration of his open-mindedness. His famous "nothing to add" at the annual meetings is an act of humility as well.

I'm not sure there is a whole lot more in the way of evidence to present regarding Munger exhibiting both of these personality traits, but observing him I do think you get that sense, and when you think about a "stubborn student" you'd expect he/she to be an extremely interesting, non-conventional person and Munger is certainly that if nothing else.

Conclusion

While much of investing can be obtained through self-directed learning, personality is largely determined by the hands we were dealt and there are certain contradictory personality traits that exist in many great investors. I think the phrase "stubborn student" captures those opposing traits and that Charlie Munger seems to embody both of these traits in a really interesting way.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.