What is a “super investor”?
I think the term “Super investor” was first mentioned by Warren Buffett in his paper titled “The Super Investors of Graham and Doddsville”. This term was given to the nine disciples of Benjamin Graham who generated high annual compounded returns (CAR) of between 18% and 29% over track records lasting a long period of time between 13 to 28 years investing in the equity markets, following some established, plausible value investing strategies over a long period of time, out-performing the broad market of less than 10% by wide margins. I have written a little about them in my post below,
https://klse.i3investor.com/blogs/kcchongnz/105247.jsp
Other well-known investors whom I consider as super investors are Warren Buffett, Seth Klarmen, Charlie Munger, Joel Greenblatt, Howard Marks etc. I have also written a little about them in the link below,
https://klse.i3investor.com/blogs/kcchongnz/99459.jsp
Note my definition of a super investor does not include people who made 100% in a year, 200% in 2 years, nor 500% in 5 years, but something like 20% over a period of 30 years, 50 years. It is also not about people who have RM100m, 500m, or billions of net worth. Hence a speculator who made hundreds of million from whatever method he used may not be a super investor in this context, but an investor who starts with RM1000 and compounds his wealth to RM1 million in 30 years may be one.
So, don’t you wish to mimic the “traits” of those super investors above and become one yourself? But can you?
But what “traits” are we talking about?
7 Traits of a super investor
Mark Sellers, a famous hedge fund manager who had made multi-bagger return for his investors before the 2008 US Subprime housing crisis, made a famous presentation to some Harvard MBA students in 2007. He presented the 7 traits of a super investor;
Trait 1: Ability to buy stocks while others are panicking and sell stocks while others are euphoric. Be an intelligent contrarian investor.
Ø Trait 2: A great investor is one who is obsessive about playing the game and wanting to win. These people do not just enjoy investing; they live it.
Ø Trait 3: A good investor is one with willingness to learn from his or her past mistakes and to analyse them.
Ø Trait 4: An inherent sense of risk based on common sense. You must have the common sense to realize the risk of buying any share which has gone up a lot and when all the analysts are recommending buy. Always take an analyst report with a pinch of salt.
Ø Trait 5: Great investors have confidence in their own convictions and stick with them, even when facing criticism.
Ø Trait 6: Ability to think clearly.
Ø Trait 7: Ability to live through volatility without changing your investment thought process.
Going through the 7 traits of a super investor above, do you think you are cut out to be a super investor?
One thing I can say for sure, very few are able to become a super investor bat. I would also say I haven’t seen any in i3investor who can be classified as super investor. This has nothing to do if he is rich, or not rich, as you can refer back to my classification of a super investor. It also has nothing to do if one has high IQ or not, or how experience he is. Why?
Trait #1 is the ability to buy stocks while others are panicking and sell stocks while others are euphoric. This will exclude many players in the stock market who would shout “cut-loss, cut-loss and cut-loss” when the share price of drops and continue to drop after announcing a bad quarter or two, but fundamentally intact in its business in the longer term. Most others would sing Rod Stewart’s song, “Sailing”. Opp, I mean “Sailang” and “continued to buy using margin finance when the share price continue to go up.” One example I used for Hengyuan recently as shown in the link, “Are you a super investor” below,
https://klse.i3investor.com/blogs/kcchongnz/144864.jsp
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The second character trait of a great investor is that he is obsessive about playing the game and wanting to win. Below is what Mark Seller explained.
“These people don't just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they’re still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they’re going to neutralize that risk. They often have a hard time with personal relationships because, though they may truly enjoy other people, they don’t always give them much time. Their head is always in the clouds, dreaming about stocks. Unfortunately, you can’t learn to be obsessive about something. You either are, or you aren’t. And if you aren’t, you can’t be the next Bruce Berkowitz.”
Frankly, I don’t wish to be a super investor following the above. For most of you, I think it is better to focus on your career, where you can get money to safe and invest for the long term to build wealth with satisfactory return with little risk.
Investing is simple but not easy. Forget about becoming a super investor. You don’t need to be a super investor to earn a satisfactory return over the long-term.
A third trait is the willingness to learn from past mistakes. You can see from public forum such as i3investor that most people like to shout “Up ah, sailing ah, run ah!” Many don’t even know nor do they care what their mistakes are. Others would much rather just move on and ignore the dumb things they’ve done in the past.
A fourth trait is an inherent sense of risk based on common sense. This I consider another one of the most important traits a super investor must have. Most people want to achieve super return in the short term; buy on euphoria, buy trending stocks, borrow more money to buy, and attempt to make a few hundred percent gains in a few months. They have no idea of what risk is. I have written a number of articles on risks on Jaks and Sendai in the link below,
https://klse.i3investor.com/blogs/kcchongnz/123266.jsp
https://klse.i3investor.com/blogs/kcchongnz/132084.jsp
On Jaks, I described the various risks of its power plant in Vietnam, a multitude of them. This seems to be the only investment Jaks has which is potentially profitable.
On Sendai, I argued that how could one bang on the billion-dollar project it has in Qatar, which in the past, it had lost its pants there, also having billion-dollar worth of project then, and the precarious position it is in with billion dollars’ worth of debts, and negative cash flows.
Trait #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. This trait could be a double-edged sword. Most market players treat stock as a piece of paper shuffling around. They have no clues at all regarding the business and its performance. A lot of naïve investors also enticed by the purported oversized gain of others who borrow heavily to speculate, and they continuously harping on their success without mentioning of their failures.
Image result for when you combine ignorance with leverage images
Sixth, it’s important to have both sides of your brain working, not just the left side (the side that’s good at math and organization.)
A great investor needs to have both sides of the brain turned on. As an investor, you need to look at its past and present performance, perform calculations and have a logical investment thesis. This is your left brain working. But few have it working. Many treats financial performance analysis such as normalized earnings, ROE, cash flows, etc, some of the essential things to look at a business as accounting jargons. Some even boast about how much money they made without having to know how to read a balance sheet. Of course, there are also those who only use the left brain who analyse to death without searching for a plausible story.
And finally, the most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process.
“Cut-loss, cut-loss, cut-loss; Run, run, run!” We hear this all the time.”
Most people ended up buy high and sell low. Buying during euphoria, and sell when panic sets in. As a result, most people lose money.
None of these traits can be learned once a person reaches adulthood. It can be honed, but not developed from scratch because it mostly has to do with the way your brain is wired and experiences you have as a child. That doesn't mean financial education and reading and investing experience aren't important. Those are prerequisites if you wish to invest in the stock market. With that you will likely to earn satisfactory return over the long-term, better than the average investors. But they are not enough to make you a super investor. Without it, you just forget about even investing in the stock market as the likelihood is that you will under-perform, or even lose money, lose big money.
Put in some effort to be an above average investor following some proven success process and strategies to build long-term wealth, slowly, steadily but surely. It is good enough. Follow some of the traits but forget about becoming a super investor. Instead, focus on other important things in life, such as your career, family, friends, hobbies, health etc. Money and wealth is important but it is not everything in life. It may not be the most important thing in life.
KC Chong at ckc13invest@gmail.com
http://klse.i3investor.com/blogs/kcchongnz/145665.jsp
