10 Qualities of a Great Investor
I spoke with David Rubenstein, the billionaire head of The Carlyle Group, which manages $350 billion. He has interviewed many many great investors, the greatest, and wrote a recent book about it called, "How to Invest". Here are some insights I got from reading the book and then talking to him about these greatest investors
1. They read a lot of books
They constantly read. A few of the books mentioned in David's book include:
Ben Graham's, "Security Analysis"
Roger Lowenstein's biography of Warren Buffett
I'd throw in David's new book.
Also Matt Ridley's "The Rational Optimist" and Peter Diamandis' "Abundance"
"Moneyball" by Michael Lewis.
Bernard Baruch's, "My Story"
Joel Greenblatt's book on investing (I forget the name right now).
And for the heck of it, I'd throw in "Trade Like Warren Buffett", written in 2005 by me.
2. They are obsessed
You can't learn and work 15 hours a day if you weren't obsessed.
My own personal theory is that if you are learning something but not obsessed then you will learn in a linear way, i.e. one new thing a day maybe.l
When you are obsessed you are building many more connections between the ideas in a category and so you learn at an exponential rate. That's why the obsessed will always do better than those simply passing the time in an area but not really in love with the subject.
3. They constantly think of "margin of safety"
Seth Klarman, one of the investors featured, wrote a book titled "Margin of Safety" that is out of print and now sells for thousands a copy on Amazon.
But, in general, all of the investors know that they can come up with successful ideas. That's, say, 5% of the job. The other 95% if de-risking investment as much as possible. This is the key to success. To win the game, you have to stay in the game.
For instance, I am not one of the great investors but I have a good track record of private investing (angel investing). Sometimes it's much more difficult psychologically to invest personal money than running a fund (and I've done both).
For me, I manage risk of a private investment in the following ways;
- I invest side by side with super-investors who have big pockets to keep funding.
- I invest only in industries that have been experiencing exponential growth
- I diversify across industries
- I like it when the CEO has sold a company in the past. It's hard to sell a company and I like to know the CEO has the skill to do it.
- I like to know how the technology was made, who made it, who verified that it works.
4. There are many different investing styles.
There's no one investing style that's the best. And David covers many styles in the book and talks to the best in each of these styles:
- buyout firms
- distressed investing
- value investing
- growth investing
- quant investing
- VC investing
- real estate
5. They are very curious
You have to be legitimately curious and ask more questions than everyone else. I once was in a due diligence meeting and I remember being afraid to ask questions (this was in 2000). An investor I admire was asking the questions and would always start off with, "I don't understand this. Explain this to me like I was a 5 year old." And he wouldn't let any question go by unless he totally understood what what happening.
6. They are very good at knowing when to go against conventional wisdom
In 2008, I'd go on CNBC and everyone would laugh at me when I said the markets were going up. Everyone thought capitalism was dead.
Almost by definition, the best investments are when NOBODY believes you. That means you get the best price.
Sam Zell sold the biggest real estate deal ever at the top of the market in 2006. Stanley Druckenmiller bet 200% of his fun against the British pound even though it was explicity pegged to the German currency.
Jim Simons started the entire field of quant investing when nobody else would touch it.
And crypto...get ready for people to constantly trash you if you profess belief that Bitcoin is going up.
7. Acknowledgement and Extreme Ownership of Mistakes
When they make a mistake, they admit it quickly, they correct it, and they NEVER blame others.
8. They've dealt with failure and/or humble beginnings
This is a generalization but when you're hungry and moving up, you get more interested in being successful.
9. Attention to Detail
Nothing escapes them in due diligence.
10. They build over time a strong network of contacts
This is how they find opportunities before anyone else.
11. They focus on building a reputation for humility, cooperation, and ethical behavior.
It's ultimately all you have.