After I wrote Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett's Top Business Leaders, many people asked me to define the winning formula for investment.
Having had the opportunity to interact with many of the investment elite, I know there is no Holy Grail. It is not always the smartest people who win, but those with the right attitude.
Warren Buffett is obviously a smart man, but his attitude is what counts. His protege David Sokol, chairman of MidAmerican Energy, told me last year: "What I learned from Warren is that one should never bring emotion to a decision. Any investment decision should be based on facts and circumstances because a business can only be worth so much."
People like to ask Buffett how he values an investment, but a question like that is not too meaningful.
He does not do it any differently than an average investor. In fact, his investment calculation model is probably the same as what we all learn from financial textbooks. The real distinction, then, is how Buffett equips himself with the right mental capacity to stick to his investment principles year after year, regardless of the prevailing environment.
This does not mean that he is stubborn or unconcerned about the ever-changing market dynamics.
Instead, he maintains the same attitude toward investing while evolving along with the market.
Temperament is what makes Buffett an investment genius. He understands well enough that evaluating a business is not difficult.
Rather, it is about keeping his emotion in check at all times because the right temperament is the decisive factor in determining who wins and who loses.
The problem, unfortunately, is that investors are never satisfied with such a simple answer.
They prefer the answer to be technical and quantifiable so that it is easier to grasp. They want success translated into a mathematical equation, so they can simply plug in the numbers and apply it to their investment strategies.
While this type of mentality may not be necessarily wrong, one should understand that investing is half art and half science.
Indeed, even if we look into the world of science, some of the greatest discoveries were not derived from numbers and equations, but by simply from being logical and observant.
In The Origin of Species Charles Darwin presented no graphs, no figures, and no lab tests, yet he explained how evolution worked by carefully and logically deducing the nature of species. Now considered one of the greatest scientists of all time, Darwin showed the world that science can be an art.
In the world of investing, we do require a certain level of financial literacy to do the math right, but in the end our evolution as investors, from fair to good, then from good to great, lies not in a single winning formula but in the cultivation of our own mindsets.
19/7/2010
by Ronald Chan
Founder and CEO of Chartwell Capital
Having had the opportunity to interact with many of the investment elite, I know there is no Holy Grail. It is not always the smartest people who win, but those with the right attitude.
Warren Buffett is obviously a smart man, but his attitude is what counts. His protege David Sokol, chairman of MidAmerican Energy, told me last year: "What I learned from Warren is that one should never bring emotion to a decision. Any investment decision should be based on facts and circumstances because a business can only be worth so much."
People like to ask Buffett how he values an investment, but a question like that is not too meaningful.
He does not do it any differently than an average investor. In fact, his investment calculation model is probably the same as what we all learn from financial textbooks. The real distinction, then, is how Buffett equips himself with the right mental capacity to stick to his investment principles year after year, regardless of the prevailing environment.
This does not mean that he is stubborn or unconcerned about the ever-changing market dynamics.
Instead, he maintains the same attitude toward investing while evolving along with the market.
Temperament is what makes Buffett an investment genius. He understands well enough that evaluating a business is not difficult.
Rather, it is about keeping his emotion in check at all times because the right temperament is the decisive factor in determining who wins and who loses.
The problem, unfortunately, is that investors are never satisfied with such a simple answer.
They prefer the answer to be technical and quantifiable so that it is easier to grasp. They want success translated into a mathematical equation, so they can simply plug in the numbers and apply it to their investment strategies.
While this type of mentality may not be necessarily wrong, one should understand that investing is half art and half science.
Indeed, even if we look into the world of science, some of the greatest discoveries were not derived from numbers and equations, but by simply from being logical and observant.
In The Origin of Species Charles Darwin presented no graphs, no figures, and no lab tests, yet he explained how evolution worked by carefully and logically deducing the nature of species. Now considered one of the greatest scientists of all time, Darwin showed the world that science can be an art.
In the world of investing, we do require a certain level of financial literacy to do the math right, but in the end our evolution as investors, from fair to good, then from good to great, lies not in a single winning formula but in the cultivation of our own mindsets.
19/7/2010
by Ronald Chan
Founder and CEO of Chartwell Capital
No comments:
Post a Comment