A big thanks to Jason Zweig for mentioning me and this blog in his article Read ‘Em and Reap: Smart People for Investors to Follow. That recognition from someone I admire--and that I think just about every value investor would put near the top of their list if they made a similar one--led me to get going and put this post together, which had been brewing in my mind for a few days.
I was listening to the Bryan Callen podcast interview with Dan Coyle about his books The Talent Code and The Little Book of Talent and there was an interesting story brought up that I think applies to investing...
I was introduced to this notion [by a] friend of mine who was friends with Wynton Marsalis, the great jazz trumpet virtuoso. And Wynton would talk about the one thing he does that nobody else does [is that] he practices fundamentals for an hour in the morning, just blowing on a reed. Things that nobody wants to do, yet he does the things that he was taught as a kid, where you think you'd have graduated from that sort of practice... And that's what separates him... He would take that hour every morning. In fact, he'd be up talking to his brother late at night and in his mind he'd say, "Man, I'm going to be tired tomorrow," because he knew no matter what, he'd wake up at six in the morning and practice for an hour the thing that nobody else would do.
I think this story provides an important lesson for investors as well. It is easy to fall for a narrative in the market and stray from a sound, long-term investing framework. It is tough beat the market over the long term, and/or to achieve similar returns while taking far less risk, but to me, there are a few advantages that I think are sustainable if you can develop the right habits:
- Process - an almost obsessive focus on process over outcome, or in the lingo of Scott Adams, on systems over goals. It's okay to set big picture goals and you need to observe outcomes in order to assess and/or improve your process, but that is a small part of the day-to-day activity of focusing on your process and the things that within your control.
- Ego elimination - keeping your ego out of the investing process. If you don't keep your ego out of the process, you are much more likely to fall for the psychological biases that are likely the biggest cause of investment mistakes. You can't worry about looking good. You need to worry about finding out what is true and what is not.
- Long-term thinking - keep a long-term outlook when it comes investing and analyzing businesses. There is a lot of noise out there, and being able to clearly focus on making long-term decisions isn't always easy. After psychological mistakes, I think the inability to be patient and look past the short-term is likely the next major cause of investment mistakes, maybe even the biggest cause.
It's important to always keep reaching and keep improving one's knowledge in order to increase skill and expand one's ability. But it's also important not to stray from the fundamental framework that is necessary for sustained success. Personally, I try to do this by building the memory palaces of the most fundamental things, which I discussed in the Memortation article, and by reading or listening to just a little bit of the books that I think are the most important for my philosophy. I do this at least a few times a week, and sometimes every day of a given week.
While a couple of these may change over time, and they will probably be slightly different from person to person, my current list is made up of The Intelligent Investor (with Jason Zweig's commentary), Security Analysis (6th Edition), Warren Buffett's Letters to Shareholders, Poor Charlie's Almanack, Margin of Safety, The Most Important Thing (audiobook), Modern Security Analysis, Competition Demystified, Value Investing (Greenwald), Fooled by Randomness (audiobook), Seeking Wisdom, and Thinking, Fast and Slow (audiobook). I also have a file that I've put together of reminders and thoughts I want to remember over time that is also part of the reading list. And while none of this guarantees success, it can probably help one avoid some errors, and in my experience, greatly improve one's ability to filter out some of the noise in the world.