Michael Mauboussin published a great piece late last week titled Reflections on the Ten Attributes of Great Investors.
I pulled a couple of the attributes below but it doesn’t do the piece justice. Mauboussin expands on each one further. You really should box out some time this weekend to read it in full.
- Be numerate (and understand accounting).
There are rarely complicated calculations but a feel for figures, percentages, and probabilities is essential.
- Compare effectively (expectations versus fundaments).
Most investors fail to distiguish between fundamentals and expectations. When fundamentals are good they want to buy and when they are poor they want to sell. But great investors always distinguish between the two.
- Think probabilistically (there are few sure things).
When probability plays a large role in outcomes, it makes sense to focus on the process of making decisions rather than the outcome alone.
- Position Sizing (maximizing the payoff from edge).
…success in investing has two parts: finding edge and fully taking advantage of it through proper position sizing. Almost all investment firms focus on edge, while position sizing generally gets much less attention.
- Read (and keep an open mind).
…Charlie Munger said that he really liked Albert Einstein’s point that ‘success comes from curiousity, concentration, perserverance, and self-criticism. And by self-criticism, he meant the ability to change his mind so that he destroyed his best-loved ideas.’ Reading is an activity that tends to foster all of those qualities.
The piece really is a self-study on being a better investor. At the end, Mauboussin lists a bunch of books that helped to shape his thinking. Give it a read.
Reflections on the Ten Attributes of Great Investors
- Margin of Danger – T. Hanson
- The Two Risk Mistakes – S. Godin
- In Praise of Failure – B. Evans
- Evidence is Not Enough – Above the Market
- Knowledge is Power – S. Fearon
- Why We Pine for Manufacturing – New Yorker
- MiB: Interview with Daniel Kahneman (podcast) – B. Ritholtz
- What’s the Most Interesting/Important Recent Scientific News? – Edge.org
- Interview with Mike Krzyzewski – SI