The author, an accomplished New York-based independent business writer, interviewed more than 40 successful investors for this book, finding that most of them seemed to have significantly broader life interests than simply succeeding in investing and amassing financial wealth. Already starting with the book’s initial chapter, (“inside the minds of the greatest investors”), the author points towards eclectic realities, such as “take risks by playing games, but be cognizant of the risks”, “be particularly careful when the market goes up” and “go for a few solid, but relatively cheap stocks”. And, when it is “all” over, the learning gained is the key!
The book’s next eight chapters illustrate what the author sees as the broad essentials set out in the book’s introduction, through providing examples gleaned from successful investors. In the first chapter, the subject is to attempt to clone other people’s best ideas. One is to be disciplined, move slowly and be patient. Inspired by successful investors such as Warren Buffett, stocks might be seen as reflections of the firms they represent, similar to as if one might want to take over the given firm itself; buy only when relatively cheap, avoid firms with too much leveraging; invest only when the price is relatively low, and so on. These are all “principles” that are set forward by the likes of Warren Buffett. Perhaps one might add: trust the CEO of the firm where one is investing, and try to work only with people that one might consider to be stronger than oneself, and which one can learn from.
To be different from the majority of other investors is also seen by many to be key. This implies that such an investor shall often have to accept a sense of loneliness. And be aware of emotions, including not becoming over-optimistic when things are going well, or, on the converse side, avoiding to become over-pessimistic when things are not going as hoped. Other aspects of managing one’s emotions might include always to go for data and facts, to be patient, to avoid going for facts to study failures, i.e., find out more about the why and whether there might be a likelihood of recovery. The legendary John Templeton seems to have been following these “rules”.
Everything appears to be changing in this world. There looks to be plenty of dynamism. Perhaps the most important conclusion from this is that it is impossible to accurately predict the future. But there will typically be cycles! It seems crucial to try to take advantage of this countercyclism! A precondition for this is probably a certain degree of humility, prudence and skepticism. One would need to be open-minded, indeed, so as to not become trapped in false beliefs regarding stages of cycles.
To build enduring wealth seems to be highly correlated with following so-called value investing approach, i.e., to always try to go for good firms to invest in, but only at a favorable price. To try to build in some measure of safety here seems important however, i.e., to minimize the risk that one is taking. Is the price truly OK? Is the quality of the firm which is issuing a given stock OK? To further reduce uncertainty, one should limit the taking on of debt to a minimum. Realism seems key, in the sense that over-confidence should be avoided, including avoiding short-termness. But it all comes back to having a reasonable margin of safety.
To go for simplicity seems to be fundamental to meaningfully be able to practice the above. This might increase one’s ability to make realistic evaluations and thereby to avoid major disasters.
A corollary of this (i.e., to go for simplicity) would be to resist any sense of gratification from success. Keep one’s ego “under control”! Again, keeping a long-term time horizon might help here. And, being honest with oneself is primary!
Is it possible for an investor to develop habits that might lead to high performance? Warren Buffett for one seems to believe in the importance of sticking to a relatively small set of “good” habits, such as to try to focus on what one might seem to understand relatively well, and to always try to learn more when it comes to this. Discipline and hard work are perhaps treasures when it comes to this. Again, a long-term view is generally indispensable, i.e., to try to find stocks that might be yielding dividends on an ongoing basis, so-called compounding machines. Companies such as Nestlé, Novartis or Roche come to mind!
The final rule-of-thumb for successful investors is to try to systematically ameliorate stupidity. Charlie Munger, Warren Buffett’s senior partner in Berkshire Hathaway, is known for this. To analyze one’s own mistakes seems paramount here: “Why might I be wrong?” And to not repeat these types of mistakes again may hopefully come out of this. Munger labels this inversion!
Having identified these eight guides to successful investing (to borrow other people’s best ideas; to act independently; to acknowledge that there are cycles that one might take advantage of; to go for value investing; to strive for simplicity; to avoid being trapped by one’s own ego; to develop good habits and to stick to these; to try to learn from mistakes to avoid doing these again), the author now concludes that successful investors typically also have additional personal traits, such as hobbies of various sorts, a willingness to support others, i.e., a willingness to share, to “give”, i.e., a realization that to be a successful “rich” investor implies an ability to intellectually discover new things in life. But such an open-mindedness commonly also means that a successful investor typically is having an “exceptional ability to take pain”! It seems to be a duality here, i.e., both being broad-minded and at the same time being comfortable as a loner.
The author has done a remarkable good job coming up with what seems to be a very good set of key factors for successful investing. And, this “list” is also relatively short! For this reviewer, it seems particularly important to practice value investing by being able to “buy on the cheap and sell on the high”, i.e., successfully managing according to cycles. But this requires the various personal traits that the author has identified, above all being able to manage alone, with discipline, and to learn with a long-term horizon!
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