The individual investor
The right stuff
My primary motivation for managing my own investments was a desire not to be dependent on someone else for my family’s financial security. This meant I would have to think for myself and act for myself and bear the consequences.
Self-reliance seems to be made up of two things: It requires the ability to think for yourself even if everyone around you has a different view. And it requires the courage to act on your ideas.
Begins in childhood
I suspect that self-reliance is a trait that begins to develop in childhood. It is learned at school from good teachers and at home from good parents. Children need to be exposed to the natural consequences of their actions to learn to think for themselves and be self-reliant. I also have no doubt that self-reliance can be enhanced throughout life.
If you always look to others for confirmation that you are right you will never be self-reliant. There is a fine line. To some extent we need to rely on others. We need to gather information and ideas wherever we can. We read news reports. We read analysts’ reports. With experience in the stock market you come, in time, to know what you can rely on from others and what to reject.
A developing better judgement
It seems to me that self reliance, good judgement and self confidence are bound up together.
All along your investment journey you will make mistakes. Seeing where you went right and where you went wrong is an important part of learning and developing sound judgement. Through this process you will come to know whether your judgment is fundamentally sound. At that point you will have something to base your convictions on when you most need them. When you develop confidence in your judgment you become less vulnerable to all the behavioral biases and cognitive errors I have written about extensively, especially the danger of overconfidence. See here
Self-reliance and independent thinking are tested in a crowd. Philip Fisher, who after Ben Graham was the largest influence on Warren Buffett’s development as an investor, wrote: “A basic ingredient of outstanding common stock management is the ability neither to accept blindly whatever may be the dominant opinion in the financial community at the moment nor to reject the prevailing view just to be contrary for the sake of being contrary. Rather, it is to have more knowledge and to apply better judgment, in thorough evaluation of specific situations, and the moral courage to act ‘in opposition to the crowd’ when your judgement tells you, you are right.” (Fisher, Common Stocks and Uncommon Profits and Other Writings 1958,1996) p277.
This ties in with my post A set of rules to develop a behavioral edge – Part 4 and The Motherlode Chapter 19. Our Urge to Do what Everyone Else is Doing.
Far from the madding crowd
To some degree the physical remove from the crowd on Wall Street and Bay Street (Toronto) enjoyed by individual investors supports independent thinking and self-reliance. Individual investors don’t work in the investment industry.
Individual investors work ‘far from the madding crowd’. I invite readers to enjoy Thomas Gray’s
Elegy Written in a Country Church-Yard:
“Far from the madding crowd’s ignoble strife,
Their sober wishes never learn’d to stray;
Along the cool sequester’d vale of life
They kept the noiseless tenour of their way.”
I suspect it is no coincidence that two of the greatest investors of all time lived and worked a long way from Wall Street; Warren Buffett in Omaha and John Templeton (one of the 20th century’s greatest investors) in Nassau.
Proctor writes that Templeton “found it was much easier to make independent judgments and flourish as a contrarian if he was living and thinking far from the influence of Wall Street’s herd mentality.” (Proctor & Phillips, The Templeton Touch, 1983, 2012) p.xiv
Templeton himself said: “We were attracted very strongly to ocean beaches, and now that we live here, we are surrounded by three ocean beaches. So, I use every opportunity when I can get away from routine work and telephones to take a briefcase full of papers and sit in the shade on the beach. There I concentrate either on security analysis, or on religious reading or study. I find it’s an excellent place to work. You can work with greater concentration there than you can in an office or in a home.” (Proctor & Phillips, The Templeton Touch, 1983, 2012) p149.
It sounds like that might even be better than a country church yard or my office at home.
Self reliance is only one of the personal traits needed to be a successful investor. It is bound up with good judgement. It is also bound up with humility and controlling the sin of overconfidence.
Readers wishing to dig further into the personal traits needed to be a successful investor might take a look at the following sections of the Motherlode:
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