So you want to be an active public investor? Unfortunately, not everyone has the right temperament to be an investor. Although one can inculcate some mindsets, many are just intrinsic. Being smart is not essential; Issac Newton famously invested at the top of the south sea bubble. Some qualities are almost paradoxical. Listed below are some characteristics that investors like Li Lu believe are essential:
1. Contrarian, Independent thinker
Betting against the market is where you make significant money. If you’re the type who cares about what people think, you might not be the best person to pick investments. If you derive considerable enjoyment from acquiring fame or popularity, that might signal that the investment business is not for you. If you want something solely because someone else wants it, you’re likely not suited to pick stocks.
On the other hand, if you are an independent and contrarian thinker constantly going against the grain. Investing might be suitable if you ask many questions or like to dig into the fundamentals.
2. Rationale and objective
Public stock investing can be like piloting aeroplanes. Pilots don’t get paid big bucks to drive planes. Most functions are already automated. Pilots' primary role is to take over when the automated system fails.
Similarly, investors must always remain rational and objective, especially during turbulent periods. What investors do during a bear market or recession makes or breaks one’s career. As famously mentioned by Warren Buffet, be greedy when people are fearful and be fearful when people are greedy.
The best investors need to see value when everyone is depressed and turn around to sell when everyone is exuberant.
3. Patient yet dynamic
Probably the most complex characteristic, investors need to be highly patient to find opportunities worthy of investment. In public markets, options are plenty, but excellent investments are rare. Charlie Munger is famous for reading 20 years of stock tips by Barron before investing. Guy Spier is known for not selling a company.
However, what makes it difficult is that once you find an excellent opportunity, you need to swing hard. In other words, you need to invest a significant part of your portfolio. Talk about almost paradoxical behaviour.
Being patient means trusting your research, even when the stock doesn’t move for many years. However, being dynamic can also mean, after many years of bad performance in the stock market, being patient, sometimes patient investors need to cut their losses.
There is a happy medium between being patient and dynamic, and the best investors must embody both.
4. Being a generalist
Investing is one of the broadest disciplines. You can use engineering, design, business, marketing, law, psychology, economics, and accounting concepts for a holistic analysis. The job entails constantly increasing your circle of competence so that more opportunities become investable. However, specialisation within your circle of competence is also critical to generate an edge over others. One doesn’t need to be a specialist in everything to make money.
Many other value investors point out that running your own company before helps you as an investor. I think entrepreneurs embody the quality and quantity of knowledge investors require.
If you don’t think you possess or can grow these qualities, investing in index funds or asking someone else to help, you manage your money might be better. You don’t need to be an active investor to have a prosperous outcome. Unfortunately, the stock market is a cutthroat place. However, if many of these characteristics resonate with you, I’d encourage you to try active public investing.