TowersWatsonAsset ManagerReview
Can one learn to be a great investor, or do great investors have characteristics that are innate – i.e. that they were born with or acquired before they began their investment careers?
says great investors have to exhibit lateral thinking because in investing the story is often bigger than the actual numbers.
“You need to be able to understand that at times the story trumps the financial analysis. So you can be greatest number cruncher, but go nowhere in investing, and you see the story investors tend to do better.
“I also don’t think you need a specific qualification but you need a way of thinking, application skills and, most important of all, the courage of your convictions.”
says being a great investor is akin to being a great artist. You have to have some traits to start with, but it is the honing of the craft that makes you excellent over time.
“Some of the traits present in great investors include the ability to distil and simplify as well as to weigh up probabilities.
“However, it is in improving the framework through which the information is processed that an investor can move from being a good investor to an excellent one with staying power.
This happens when there is open-mindedness, and a willingness to learn – two important traits.
“The investor who can harness the ability to know when to walk away, is already streets ahead.”
says investment success is the result of very hard work, bravery, natural talent, and good luck.
No one can perfectly forecast the future, but one should ensure that their investment process is embedded more in hard work and skill, rather than luck.
Instead of doing what others do, a great investor first thinks in terms of principles and then reasons from there. Focusing on the most fundamental investment truths (on the signal and not the noise) can help an investor understand risks and make better decisions.
Understanding risks are central to weathering bad times better than the average investor. This understanding enables an investor to also take risks that others may be fearful of, and that can earn high returns.
While this skill can be learnt, it is used most effectively when it is natural or instinctive. MacroSolutions boutique says one can comfortably assume that investment professionals have mastered the “science” of investing by having the necessary technical skills and qualifications.
However mastering the “art” is a different matter and the question is whether one can learn this.
“There is certainly no clear cut answer. The world of investments has similarities to the world of performing artists and sportsmen.
“Apart from talent, temperament and passion, which all speak to innate characteristics, discipline and practise are required. This implies that time in the game can help to develop the ability to consistently perform well.” says great investors have certain qualities that are intrinsically linked to their character.
“In our experience, intellect is less important than one would think. Investors certainly need to be smart, but once one reaches a certain hurdle it counts for less than one would think.
“We interview countless graduates with outstanding academic track records. However, we find very few that are independently minded, curious, courageous, decisive, patient and disciplined.
“These are qualities that cannot be ‘acquired’ as an adult ? either you were born with them or you have your parents to thank for cultivating them in you.
“We can only help to develop someone’s financial and business acumen, but without these essential qualities, this will count for little.”
says the single most important ingredient required to be a successful investor is passion.
A passion for markets and for investing is an absolutely necessary condition for longterm success in this business. The best managers I have had the privilege to observe and work with cannot conceive of themselves doing anything else.
This might sound clichéd, but it is none the less an ab- solute truth.
Besides the passion for what you do, combined with continued learning and growth, the best fund managers also have the judgment and propensity to take calculated risks.
Once you have developed a sound technical and analytical base to your training, a good fund manager should feel comfortable with taking some risk.
Applying this type of judgment successfully over time might demand more experience. Unfortunately this is the ‘art’ part of what investment professionals do, and some may argue is more innate and cannot be taught.
It goes without saying that to do any of these well requires a high level of intellect and basic hard work. This industry attracts the brightest, most motivated and most hard working.
And because investment markets are a zero-sum game, investing is relentless competi- tion against the best the world has to offer.
The irony is that being smart can sometimes be its own handicap. The extremely intelligent over-achievers have often never failed at anything until they join the market.
And for the first time in their lives they are failing often, and many simply cannot take what the market dishes out. The final element is therefore real comfort in one’s own skin and the willingness to swim against the tide. Dave Foord, chief investment officer at FOORD says although the basic tools of the trade are “teachable”, fund management per se is not teachable.
Fund management can be “learned” by someone with the right aptitude, temperament and attitude but experience is the reliable teacher in this industry.
“Throughout history, the greatest investment minds were independent thinkers. It is important to learn from your collective and individual experiences, particularly the negative ones.”
says he has had the benefit of working with a few great investment professionals.
All have an enquiring mind, a love of the investment markets and the ability to focus with great intensity on any in- vestment related debate.
Add to the mix enthusiasm and a high work ethic and you have the building blocks of a reasonably good fund manager. The one variable that is substantially underrated, however, is luck. And not everybody has that.
says certainly, one learns to be a great investor.
In much the same way as in almost all professional sports, there is usually a long learning period before one reaches one’s peak, involving much practice, which in reality means a lot of trial and error.
“This is true in both the physical sense as well as in the mental skills space. If you do not have the mental toughness to deal with the stresses of an industry (including dealing psychologically with failing at times), then it is unlikely that you will ever access your peak – in this case, your investing greatness.
“Each of us follows a separate path following and learning different mental models in achieving the ability to discern the important from the unimportant, and there is no set path to that.
“No one is ever born with the necessary skills to achieve investing greatness. Even those who may appear to be born to the job have developed mental processes and strategies for dealing with the non-linear issues that one is faced with in investing.”
says great investors tend to be born with the requisite temperament to make the right long-term decisions and the stamina to withstand the pain of views not panning out in the short term.
Great investors also tend to learn from their own experiences over the years, making investment a profession where one can definitely improve with age.
says while certain human temperaments are common in good investment professionals, these are not the only determinants of success.
“Temperaments and traits that are linked to patience, curiosity and an analytical mind certainly make it easy for an investment manager to cope in a highly stressed environment.
“However, we also believe that there is no substitute for hard work and detailed research which eventually build capacity in an individual’s decision making capability.
“Since investment markets are really just a history of the social sciences, building an understanding of this history is the most measurable way of building good investment careers.”