What Do the Best Investors Do That the Rest Don’t?
by Gary Mishuris, CFA
something simple yet profound at the 2017 Berkshire Hathaway Annual Meeting: “A lot of
other people are trying to be brilliant and we are just trying to stay rational. And it’s a big
advantage.” Some might think that becoming an excellent investor requires off-the-charts
intelligence or some highly proprietary model that leads to an edge that nobody else can
replicate. That is not what experience has shown.
Here are some traits and behaviors that have allowed investors to excel over the long-term:
1. Temperament. Temperament is the most important quality for an investor to have. My
observation of many investors over my 15+ years of professional investing has led me to
believe that temperament cannot be learned, but rather it is an innate characteristic of
one’s personality. Some people are able to remain rational and continue to follow their
process even under great duress or during periods of external upheaval. Others get
swept up in the emotion that typically runs amok during such circumstances, and
abandon their discipline.
2. Ability to do nothing most of the time. Most of the time there are few good investments
that combine sufficient business quality with a large margin of safety in the form of a
large gap between price and intrinsic value. That doesn’t mean that great investors are
spending all of their time relaxing on the beach – to the contrary, they are typically
avariciously reading and studying business and industries, preparing for the moment
when securities of companies they understand well can be purchased at attractive
prices. It does mean that they make investments infrequently, and that most of the time
when they look at a potential opportunity they end up passing. Those who are unable to
maintain this state of low activity frequently end up making questionable investments to
satisfy their desire to do something, and more often than not it is their brokers who are
the biggest beneficiaries of their elevated activity levels.
3. Accumulation of mental models. Understanding different disciplines helps great
investors look at questions of business analysis in new ways. While studying economics
and industry-specific information can certainly help, the best investors also use insights
from other fields to reach better decisions.
4. Focus on process over outcome. Benjamin Graham wrote: “In the short-term the market
is a voting machine, but in the long-term it is a weighing machine.” What he meant was
that in the short-term security prices fluctuate purely based on the opinions of market
participants, and can deviate widely from the underlying business values. In the longterm,
it is the company’s assets and cash flows that determine its value and exert a
force of gravity upon the price of its securities. With security prices available on a minute-
by-minute basis, the run-of-the-mill investors focus on analyzing randomness – allowing
themselves to become happy or sad over short-term price fluctuations that are
disconnected from whether they were fundamentally right in their investment analysis.
The best investors work hard to not be affected by the short-term price fluctuations, and
instead focus on both improving their process and consistently executing it. Over the
long-term their performance is a result of the quality of their process and of the
consistency with which they execute it.
5. Minimizing behavioral biases. Behavioral biases are pervasive and nearly impossible to
eliminate, but the best investors work hard to be consciously aware of them and to take
specific steps to mitigate them. As I wrote in Behavioral Defense in Decision Making,
there are a number of steps one can take to stay as unbiased as possible. One of my
favorites is to consciously seek out the strongest possible opposite point of view that
contradicts my thesis. If done well, this can lessen the impact of many biases, such as
anchoring, over-confidence and base-rate neglect.
I frequently get asked by prospective investors about what my ‘edge’ is as an investor.
Sometimes I think the answer that they are looking for is some proprietary model, some
black-box that spits out superior answers that nobody possesses, or an ability to know what
the future holds based on some deeply proprietary network of sources. The real answer is
less exciting, but nonetheless quite effective. It is the combination of the traits and
behaviors that I described above. I would add a sixth one to the list – staying humble while
maintaining your confidence. History is littered with many seemingly great investors who fell
apart and produced disappointing results for their clients just as they had accumulated the
greatest amount of assets after a good run of performance. Perhaps some of them were
never as great as they seemed, but in other cases I can’t help but think that it was a
combination of hubris and complacency that led them astray.
The best investors stay humble – always thirsting to learn and improve as well as accepting
that they are fallible and can make mistakes. This helps them to be on guard against the
traps of complacency and overconfidence. Some view this posture as inconsistent with
confidence in one’s abilities – after all, this is an industry where some think that the best
investors are supposed to be on CNBC or on the cover of some financial magazine telling the
world how great they are, which seems incompatible with a humble, introspective approach.
Believe me, the people I admire most as investors have rejected this false dichotomy, and
are able to balance humility with confidence and competence in a way that allows them to
continue to improve for many years.
About the Author
Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value
Partners, an investment firm with a concentrated long-term intrinsic value strategy. Prior to
founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset
Management since 2011, where he was the Lead Portfolio Manager of the US Focused
Value strategy. From 2004 through 2010, Mr. Mishuris was a Vice President at Evergreen
Investments (later part of Wells Capital Management) where he started as an Equity Analyst
and assumed roles with increasing responsibilities, including serving as the co-PM of the
Large Cap Value strategy between 2007 and 2010. He began his career in 2001 at Fidelity
as an Equity Research Associate. Mr. Mishuris received a S.B. in Computer Science and a
S.B. in Economics from the Massachusetts Institute of Technology (MIT).
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