What Makes a Good Investor?

by | Oct 3, 2000 | Archives

Dear International Friend,

I have had the privilege of working and speaking at seminars with some of the world's best known and best investors, (John Templeton, Peter Lynch, Ian Dalrymple, Michael Keppler, etc.) . This experience helped create some excellent insights from the recent feedback on our Ritalin message. The comments praised and damned equally. This is good! We opened imaginations, raised concerns and started thinking. That's the way to learn. Yet the comments suggest that many readers entirely missed the point. Replies were about how good (or bad) the information was not the economics of the message. The question I wanted you to ask yourself was not whether you agreed with the heavy use of Colas, Ritalin etc. in schools and our society but, how will this use will affect our financial future?

This departure from the financial point is a factor that separates losers from good investors. Separation is a perfect word too, because good investors do not separate events in life from financial opportunity. Everything is an economic event. Even contradicting opinions. One may be right and one may be wrong (or both may be right). Yet each opinion will motivate its thinker to some form of action. That action is an economic event.

Unfortunately our educational process separates everything. We are taught that mathematics is different from biology which is different from physics, which is different from religion, which is different from economics, etc. Quantum physics suggest that this mode of thought is wrong. Everything is related.

A good explanation of how the world is connected and how this affects economics is in the book “Chaos” (James Gleick Viking 1987). Here is what Gleick say: ” Benoit Mandelbrot worked in the pure research wing of IBM. He had been dabbling in economics studying the distribution of large and small incomes in an economy. A Harvard economics professor named Houthakker had invited Madlebrot to lecture and when he arrived in the stately economics building just north of Harvard Yard, he was startled to see his findings already charted on the blackboard. Mandlebrot made a querulous joke, “how should my diagram have materialized ahead of my lecture” Professor Houthakker did not know what Madlebrot was talking about. The diagram had nothing to do with income distribution; it represented eight years of cotton prices.”

Good investors recognize how the world is connected.

Good investors are also quite objective. Yet most investors get caught up in their personal prejudices and let these prejudices blind them to reality. Why this happens is explained in a book titled “How to Know God The Yoga Aphorisms of Patanjali, Translated by Prabhavananda and Christopher Isherwood.” Patanjali describes how we think in this book. Here is what is said: “The mind is made up of three processes, the recording facility which receives impressions, the discriminative facility which classifies these impressions and reacts to them and the ego-sense that claims these impressions for its own and stores them up as individual knowledge. For example the recording facility reports, A large animate object is approaching. The discriminative facility decides, That's a bull. The ego sense screams, It wants to attack me! It is I that sees that bull. It is I who is frightened. It is I who is about to run away. Later from the branches of a nearby tree the ego-sense may add, now I know that this bull is dangerous. This is my personal knowledge which will cause me to avoid this bull in the future.”

Good investors do not take such ups and downs (swings in their investments) personally. Good investors do not take the attitudes of others personally. Thus as an investor you may decide that the high use of Colas may create a good opportunity or may be bad long term for the economy. You may not agree with opinions of others but you will recognize that these opinions and the actions they bring will affect the economics of the world. Good investors will act based on their beliefs derived from such thoughts.

Great investors watch life and look for connections. They continually evolve and use any and every investing tactic that works. They have thought patterns that differ from the norm. They do not let their prejudices blind them to what others will do. What do you think are factors that might make you a great investor? Let's hear from each of you in the Philosophy forum.

Good investing!