I am just wondering, Warren Buffett isn't as smart as Einstein, and almost all the great investors have average IQ but still these guys are on the top. Why is it happening? What is it all about? Character, luck or something else? 
What is the key difference between very successful investors and average?
- Thread starter felixbocharov
- Start date
Baron
ET Founder
If you've read any of Charlie Munger's books, it all boils down to cherry picking the best opportunities to buy great businesses at a low price and then just sit on them for the long term. He puts it into perspective by giving the following challenge: "If you could only make 20 investments in your entire lifetime, which ones would you choose?".
I am just wondering, Warren Buffett isn't as smart as Einstein, and almost all the great investors have average IQ but still these guys are on the top. Why is it happening? What is it all about? Character, luck or something else?
Luck -> To make one buffett you just need 999 losers.
As well as humility and quickly correct mistakes.
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The myth of Buffet is large and IMO wildly exaggerated. I have read some interesting stories and facts. However, I think he is a genuinely decent fellow - just keep your hands in both pockets as you talk to any trader!
I would vote for humility (or the lack of ego involvement) as THE key trading trait. As someone once said: that he was a brilliant man but he overcame that severe handicap and learned to trade. I think it's true in any great repeatable success.
IQ types have at least two areas to deal with - their mistakes (since they don't make any) and their superiority. Posters rarely bother me since the market has punished me often using my own ego to beat me over the head. That said I am human and tomorrow is another day.
I would vote for humility (or the lack of ego involvement) as THE key trading trait. As someone once said: that he was a brilliant man but he overcame that severe handicap and learned to trade. I think it's true in any great repeatable success.
IQ types have at least two areas to deal with - their mistakes (since they don't make any) and their superiority. Posters rarely bother me since the market has punished me often using my own ego to beat me over the head. That said I am human and tomorrow is another day.
I am just wondering, Warren Buffett isn't as smart as Einstein, and almost all the great investors have average IQ but still these guys are on the top. Why is it happening? What is it all about? Character, luck or something else?
Being a great investor (or trader) kind of has nothing to do with traditional academic smarts or IQ.
Some of the bests traders are relatively common folk...like video game addicts or former swimming pool workers. (CIS, Dan Zanger)
Baron
ET Founder
It's very easy to oversimplify the Buffet/Munger success, but when you really spend the time investigating their approach, you'll find out that that what they do is extremely complex. And that's why they are at the top.
Munger uses the term "mental models" as a way to describe the 90+ disciplines of thought that are required to truly be super-successful. You can't just know a lot about economics. You can't just be good at math. You can't just be an expert at reading financial reports. You can't just have a solid understanding of human psychology. You have to be good at them all, plus be good at over 86 other disciplines.
Munger uses the term "mental models" as a way to describe the 90+ disciplines of thought that are required to truly be super-successful. You can't just know a lot about economics. You can't just be good at math. You can't just be an expert at reading financial reports. You can't just have a solid understanding of human psychology. You have to be good at them all, plus be good at over 86 other disciplines.
There is zero percent luck to it other than another great mind and great investor "dropping" out because of cancer or so which some may attribute to "bad luck". It is hard work and learning from mistakes (hopefully others commit).
Why not taking cues from those that actually run the firm? Baron already pointed to Munger and Buffet: patience. Even the ability to only choose a handful of the greatest opportunities requires a lot of patience by dropping countless other opportunities that cross our path first. And then the patience to sit on our hands. I don't think I exaggerate when I say that your average 25 year old nowadays cannot even sit for 1 minute at a table, hand palms flat on the table, and do nothing. It's an impossibility for most. Not saying Buffet just sits around but fact of the matter is that he simply does not care as much about quarterly results as much as every one else does. He can afford to take a long term view and sit out many storms that broke others
Why not taking cues from those that actually run the firm? Baron already pointed to Munger and Buffet: patience. Even the ability to only choose a handful of the greatest opportunities requires a lot of patience by dropping countless other opportunities that cross our path first. And then the patience to sit on our hands. I don't think I exaggerate when I say that your average 25 year old nowadays cannot even sit for 1 minute at a table, hand palms flat on the table, and do nothing. It's an impossibility for most. Not saying Buffet just sits around but fact of the matter is that he simply does not care as much about quarterly results as much as every one else does. He can afford to take a long term view and sit out many storms that broke others
Some say women are better investors than men. Why? Women invest without ego or a need for adrenaline rush. Their more likely to invest with patience (long term), solid brand names (stability), economic stability (long history), proven management (consistent dividends), fair value, etc.. They want investments that give them a sense of security. This is what Benjamin Graham called a margin of safety. Ben Graham happens to be the mentor of Buffet. So, you could say Buffet invests more like a woman would...in theory. Women and Buffet are like farmers (cultivating wealth) and most men are like hunters (short term kill). Yes, there are hedge fund kings (Soros) out there who are in between these two concepts. Soros knows very well what deep value is and what future trends are likely to be...plus a sense of when a market is out of whack.I am just wondering, Warren Buffett isn't as smart as Einstein, and almost all the great investors have average IQ but still these guys are on the top. Why is it happening? What is it all about? Character, luck or something else?
disagree, his relative returns over time are way higher than the ones of an average investor. In fact it is much harder to achieve same returns with a larger investment rather than a small investment.