Thursday, October 27, 2005

Qualities of Successful Investors

A friend of mine was shopping at a local garage sale and came across a book for 25¢. She picked up the book and after reading the title, “The Money Masters”, quickly determined that she wouldn’t have much interest in it. A gift-giver by nature, she thought that at 25¢ she didn’t have much to loose by purchasing it and further thought that she might offer it as a grab-bag gift for the upcoming Christmas season. [It was only July. She does her Christmas shopping early.] After plucking her quarter down, she shoved the book in her bag and made her way to the neighborhood Starbucks for her daily chai tea.

One highly probably event she was likely to experience during her visit to Starbucks was that she would run into me. [My usual is the grande mild coffee.] When she arrived I noticed the tattered book sticking out of the top of her bag. After our usual salutation, I gloated. I told her that I was happy that I had had an influential role in her reading choices.

A little background is in order. My friend and I, during our many java induced conversations, have often talked about money. Everything from the evils of it, to the lack of it, to the pursuit of it, to the role of it, to the love of it, to the need of it. To be fair, she is much less interested in “money” as subject matter than I am. In any regard, I took most of the credit for her excellent book choice. [And undervalued no less. A used copy on will cost $11.65. She found her copy for 25¢ representing a 98% discount to intrinsic value!] But I had the suspicion that she did not realize what a gem she had stumbled upon.

In an attempt to show her the usefulness of the book I recalled one conversation we had about the genius it took to be a good investor. Her view was that most people were not “smart” enough to be investors. To counter her belief I paraphrased Warren Buffett, arguably the world’s greatest investor, by stating that successful investing requires a rational approach and fettered emotions, not a high IQ. My friend seemed slightly moved by my (and Mr. Buffett’s) stance but openly pondered, “What is meant by a rational approach?” I pointed out that one of the great benefits of possessing “The Money Masters” is that it more clearly spells out Buffett’s (as well as other great investors) approach and core beliefs better than I ever could. In the case of what makes a good investor Buffett lists to six qualities in the book:

“You must be animated by controlled greed, and fascinated by the investment process.
You must have patience.
You must think independently.
You must have the security and self-confidence that comes from knowledge, without being rash or headstrong.
Accept it when you don’t know something.
Be flexible as the types of businesses you buy, but never pay more than the business is worth.”
Anyone can possess these qualities. It doesn’t take a high IQ to be a good investor. If you find that you do not possess these qualities however you should find a financial advisor or investment manager that does.

Oh yes, I’m happy to report my friend will be holding onto her garage sale gem. She’ll be shopping for used neckties for her grab-bag gift instead.

[Disclosure: I and the clients of Brick Financial Management, LLC owned shares of at the time of this entry.]


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