The STRIDE Blog

Buffettology: You don’t have to be Einstein to Invest Fruitfully

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."

This has to be one of my favourite quotes by Warren Buffett (read more Warren Buffett facts here). As an independent investor, without a degree in finance, I find it very motivating and assuring. It gives me the necessary confidence I need for investing independently.

Investing isn’t about being smart, it’s about being patient.

You don’t need to be highly intellectual to invest well. Thinking that you have to be is a common mistake made by many current and aspiring investors. I blame this assumption mainly on financial jargon and financial advisors trying to deceive us for the benefit of their wallets. When starting your investing journey, the financial jargon you come across can be discouraging; not to mention the investment advisors who keep reminding us that we won’t be able to invest successfully on our own. Fortunately, we have the wise words of the ‘Oracle of Omaha’ to motivate us and the necessary resources to decipher the terminology. For instance, the wonderful people at Investopedia have compiled a massive dictionary of investing terminology accompanied by their definitions. If you ever find yourself second-guessing the meaning of a financial or investing term, surf over to Investopedia and I’m sure you will find a clear definition.

As long as you have the ability to read, have patience, the willingness to learn, the attitude to succeed and own a calculator you will do just fine. Although sifting through hundreds of data-filled pages and comparing it to find value in the bargain basket can be a daunting task, it is completely possible to do so without having a financial degree or investment advisor.

Possessing the proper temperament is much more advantageous than having a high IQ.

Warren Buffet isn’t classified as one of the greatest investors of all time, because of his ‘Einstein-like’ IQ. He became so unbelievably successful because of his temperament. Investment success is in direct correlation with one’s temperament, or more specifically one’s ability to avoid fatal investment flaws. Investment flaws are mostly caused by emotion-based decisions made by impulse. Buffett bases investment decisions on cold hard facts and doesn’t allow outside sources such as the media or financial analysts to influence his decisions. It is difficult to block out what the media and analysts are saying and so much easier to follow the masses. If everyone is doing it, it certainly can’t be wrong, or can it? Always remind yourself that Buffett didn’t create his wealth by following the masses. He did it by doing the exact opposite.

It may seem so, but advanced mathematics is not a requirement to succeed in the field of investing, nor having knowledge of all industries. It is far more important to limit impulsive decisions rather than having a great understanding of the stock market or a company’s business model. You may have a great understanding of the intricacies of the market and its sectors, but when it comes to buying and selling at the right time, you still make impulsive decisions resulting in financial loss. Thus, having a high IQ won’t take you as far as possessing the proper temperament.

The ordinary independent investor, who works hard, keeps a level-headed mindset, buying low and selling high, is almost certain to outperform his more gifted counterpart who falls prey to their emotions.

If you still don’t feel confident enough, there is always an alternative. Do a bit of research and find stock picking software that suits your investment needs. Not everyone is born with Warren Buffett’s temperament. Other people have to contradict their most inherent feelings to be successful. If you know you struggle to put up a fight against your emotions, you should make use of value investing software that targets value bargains, tells you which stocks to buy or sell, when to buy or sell them and how much to buy or sell them for. Remember the software doesn’t do the investing for you, it recommends you to take certain actions. Have trust in the software you buy and follow its recommendations, unless you find reason not to do so.

Conclusion

In general, investing is a game based on inaction rather than a game of reaction. In the long run the player with the most patience will reap the most benefits. Those who survive are the ones who possess the proper temperament or those who learned to control their destructive impulses. The best advice I can give you is: switch off your emotions and think like a computer.

Topics: Buffettology

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