I was reviewing some of my old files and came upon a transcript of a talk given to Harvard MBA’s by a fellow named Mark Sellers of Sellers Capital. The talk was entitled “So You Want To Be The Next Warren Buffett? How’s Your Writing?”
In the talk, Mr. Sellers was frank and blunt with the newly minted MBAs.
“I know that everyone in this room is exceedingly intelligent and you’ve all worked hard to get where you are. You are the brightest of the bright. And yet, there is one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less.”
Here is an excerpt from the speech, you can read the entire speech here.
One thing I will tell you right off the bat: I’m not here to teach you how to be a great investor. On the contrary, I’m here to tell you why very few of you can ever hope to achieve this status.
If you spend enough time studying investors like Charlie Munger, Warren Buffett, Bruce Berkowitz, Bill Miller, Eddie Lampert, Bill Ackman, and people who have been similarly successful in the investment world, you will understand what I mean.
I know that everyone in this room is exceedingly intelligent and you’ve all worked hard to get where you are. You are the brightest of the bright. And yet, there ís one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less.
And I’m adjusting for the fact that you all have high IQs and are hard workers and will have an MBA from one of the top business schools in the country soon. If this audience was just a random sample of the population at large, the likelihood of anyone here becoming a great investor later on would be even less, like 1/50th of 1% or something. You all have a lot of advantages over Joe Investor, and yet you have almost no chance of standing out from the crowd over a long period of time.
And the reason is that it doesn’t much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet almost none of them end up compounding at 20% or 25% over their careers.
I know this is a controversial thing to say and I don’t want to offend anyone in the audience. I’m not pointing out anyone specifically and saying, “You have almost no chance to be great”. There are probably one or two people in this room who will end up compounding money at 20% for their career, but it’s hard to tell in advance who those
will be without knowing each of you personally.On the bright side, although most of you will not be able to compound money at 20% for your entire career, a lot of you will turn out to be good, above average investors because you are a skewed sample, the Harvard MBAs. A person can learn to be an above-average investor. You can learn to do well enough, if you’re smart and hard working and educated, to keep a good, high-paying job in the investment business for your entire career.
Mr. Sellers goes on to highlight the seven traits of highly successful investors.
1. The ability to buy stocks when others are panicking and sell stocks while others are overly bullish.
2. The second trait of a great investor is that he is obsessive about playing the game and wanting to win.
3. A third trait is the willingness to learn from past mistakes.
4. A fourth trait is an inherent sense of risk based on common sense.
5. Great investors have confidence in their own convictions and stick with them, even when facing criticism.
6. 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.)
7. And the most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss.
The conclusion is that these traits are most likely hardwired into your brain when you are a child. Of course, skills can always be honed and improved, and they should be as we strive to become the best investors we can be. I have been contemplating this for a few years.
Is being a top investor nature or nurture or some combination of both? I have come to the conclusion that being a top-tier investor is like most endeavors. Some are blessed with the necessary traits to allow for consistent outperformance, but most are not. However, this does not mean that we cannot achieve above-average market-beating returns.
Just because you will never be on the PGA tour does not mean you cannot improve your golf game and be above average at the game of golf. You don't need to compound capital at 20% plus for decades, like the top investors, in order to be a successful investor. One can have a successful and profitable investment career if one strives to constantly improve, learn from mistakes, and battle your own bias and psychological hurdles.
I would add one more trait that can, in fact, be learned: having realistic expectations regarding returns on investments. Over the last several decades, central banks have inserted themselves into the markets and printed so many currency units, creating many different bubbles.
This has led many “investors” (mostly likely speculators without knowing it) to assume that above-average returns are easy to achieve. The truth is that excessive money printing has created the illusion of investing being easy. I suspect that, like previous bubble periods, reality will teach this lesson to many over the next few years.
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