6 ms·

What Do the Best Investors Do That the Rest Don’t?

40 points by gmishuris 3y ago

chiefalchemist 3y ago
Perhaps it falls under biases but I'm surprised he didn't mention: Know when to quit. Or more precisely: Define your exit points and stick to them. That is, we all have a tendency to double down on bad decisions (as things go sideways). Or we get greedy as things go well and hold longer than we should.
- ldx1024 3y ago
  Looks like it was under temperament: "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."
- ant6n 3y ago
  On that note, what’s the easiest way to build a personal trading bot? Something in a simple language, that I can still nacktest perhaps stock and options.
  - Closi 3y ago
    There isn’t - you are competing against big bank trading bots in a world where the best bots win.
    - ant6n 3y ago
      Nah. If you have a bot that invests 10K, and has a reaction time of a minute, and invests in 10-100 equities with, say a couple of months each time, then you are in a completely different world than big bank bots. Its like Warren said, its easy to invest a million.
      - Closi 3y ago
        It's easy to invest a million in some index fund, but it's not easy to beat the market.
  - anonymoushn 3y ago
    Obviously nobody should trade cryptocurrencies, but cryptocurrency exchanges tend to have unusually equitable market access for solo quants compared to US equities or whatever.
known 3y ago
[dead]
namaria 3y ago
They get retroactively anointed 'good investors' due to survivor bias.
- teekert 3y ago
  And then out of the thousands of traits present in these investors, the 5 that this selected group happen to share, and seems quite logical, at times seem insightful, will end up in a blog.
  - chii 3y ago
    and also, the millions who _do_ share these traits but fail(ed) at investing.
  - blitzar 3y ago
    It is not too different from the "Billionaires do these 10 things every day. Do them and you too will be a billionaire."
MezzoDelCammin 3y ago
Let me guess : "post platitudes on HN"?
tchalla 3y ago
> Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper. https://business.columbia.edu/cgi-finance/chazen-global-insights/superinvestors-graham-and-doddsville https://business.columbia.edu/cgi-finance/chazen-global-insi...
ShawnL30 3y ago
The ability to invest is a privilege, since most of us cannot afford to do nothing but learn and wait until a good investment opportunity shows up.
BazookaMusic 3y ago
Insider trading sometimes
mg 3y ago
My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a photo of Charlie Munger and Warren Buffett. Does this imply that they are "better" than the average investor? Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Now some might say that it is "easy" to outperform the market with a single stock. Pick a very volatile one and your chances are 50%. And that Munger and Buffett made many investments. And that the chance is low to make that many investments and in total still beat the S&P500. Ok. But how low is the chance for the number of trades Berkshire did? Maybe it is totally normal, that some investors do that many trades and beat the S&P500 by pure chance. By the way, a QQQ certificate which contains the 100 largest tech companies also outperformed Berkshire and had about twice their performance over the last 20 years.
- lucas_membrane 3y ago
  Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!
  - Cthulhu_ 3y ago
    Survivorship bias though; did they report on anyone that held the account for a long time and lost money? But yeah, this is the generalised advice; spread your investments, index funds, and wait. The market's trend over long term always goes up. It's just that it's more of a retirement plan than a get rich quick plan; people want or need money early in life, buy a house, be financially secure. I think it was better for everyone back when, when the Simpsons started airing, where a single low education level income was enough to buy a house and support a whole family. That was wealth.
jacob_rezi 3y ago
They come to the office and ask your employees what they are working on and they relate their experiences to each employee individually. This is for a small company of 6
jacquesm 3y ago
They're more lucky.
drumhead 3y ago
It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.
- H8crilA 3y ago
  Value investors pretty much do not use risk control as known from shorter term trading. They just buy low and sell when facts change (down) or prices change (up).
  - drumhead 3y ago
    I think diversification is a key tenet of value investing. The margin of safety applies to the individual company but that doesn't guarantee success, so a diversified portfolio is one key method of reducing risk.
    - H8crilA 3y ago
      Right, but that diversification is into 5 or 10 companies. Risk management that you can find in various trading shops is a much more involved process than that.
- rrrazdan 3y ago
  You are right that position sizing is important but for the opposite reason. Knowing your winners and then full on concentrating in them is statistically a big part of what makes successful winners.
  - drumhead 3y ago
    For traders maybe, because they pyramid the position on the back of any gains made. But you also don't want to have so much invested in one company that it becomes make or break. A 10% loss on 5% of your portfolio is way more manageable than 10% on 50% of your portfolio.
GuB-42 3y ago
- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you will mostly end up with reasonable market-rate returns. But to be really good, you don't just need a good betting strategy, you also need the house edge.
- gorbachev 3y ago
  Nobody is lucky for as long as Berkshire Hathaway has been successfully doing this.
  - simiones 3y ago
    Sure, that's why there are three more items on the list.
  - quickthrower2 3y ago
    If that is the metric then the best investors are not passive stock picking investors, they run businesses and hammer out deals. Which in some sense just make them the best (or among the best) corporations.
- Cthulhu_ 3y ago
  Like with gambling or startups, out of every 1000, maybe 1 will make it big; out of those, a fraction will choose to become famous / a known name, and that's the survivorship bias that gets thousands more amateur investors to try their hand and get rich quick, turning their life savings into another fraction of a percentage of these top investors' accounts. For most of us regular people, slow and safe investments are the way to go. Get savings, get some interest on that to at least partially counteract inflation, buy a house, avoid debts, loans and subscriptions as much as you can. And I'm aware that all that sane money management advice isn't even an option for a lot of people.
- zone411 3y ago
psiops 3y ago
I guess it pays to be temperamentful and "do nothing" if the pool of money you get to play with is huge to begin with. If you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.
- chii 3y ago
  > f you have limited funds to invest with, the temptation to take risk to make a significant profit looms large. aka, greed.
Panzer04 3y ago
I think the strongest edge one can have is to be able to invest independent of any market sentiment. If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway. It is far too easy to get wrapped up into wanting the best possible return by buying at the lowest price, and selling at the highest price. The reality is that's near impossible. However, buying companies that by the numbers indicate a 20% return, even if they night get cheaper in a crash, is a decent way to actually get a 20% return. The problem is those kinds of investments only show up with severe uncertainty and negative sentiment. By the time they feel good to invest in the price has reflected that change in sentiment. Of course, this all presupposes skill at evaluating these businesses accurately and reliably, so losers don't drag you down when the negative sentiment is actually correct :/.
- chii 3y ago
  > If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway. and take the risk that you just overlooked something the rest of the market has priced in. But i guess to invest, one must have conviction that they're right about their investment thesis.
starbugs 3y ago
> 1. Temperament [...] My observation of many investors over my 20+ years of professional investing has led me to believe that temperament cannot be learned I would be interested in whether this is a justified belief or not and whether there is actual research on that topic. Does anyone have any insights on this?
- kqr 3y ago
  All I know in relation to this is that some Parkinson's medications can increase the desire to gamble with high risk, which I guess is a negative temperament for an investor.
isomorph 3y ago
(I thought it said inveNtors, not inveStors... That would be exciting to read too)
deleted 3y ago
[deleted]
alangibson 3y ago
The only reasonable definition of "good investor" is consistently beating the market. Buffet is close but not perfect. Does anyone know of an investor with a better record?
- wouldbecouldbe 3y ago
  Yeah I think the Renaissance fund.
  - chii 3y ago
    I think they managed to use data and pattern recognition to find arbitrage opportunities between different chains of commodities (and stocks perhaps). It's also why they have limits on the fund's size - they cannot move the market or risk breaking that arbitrage in the first place (where breaking it also could mean their trades show up and get noticed by a third party).
YChacker100 3y ago
Who do you consider to be the best investors?

40 points by gmishuris 3y ago

Perhaps it falls under biases but I'm surprised he didn't mention: Know when to quit. Or more precisely: Define your exit points and stick to them. That is, we all have a tendency to double down on bad decisions (as things go sideways). Or we get greedy as things go well and hold longer than we should.

ldx1024 3y ago
Looks like it was under temperament: "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."
ant6n 3y ago
On that note, what’s the easiest way to build a personal trading bot? Something in a simple language, that I can still nacktest perhaps stock and options.
- Closi 3y ago
  There isn’t - you are competing against big bank trading bots in a world where the best bots win.
  - ant6n 3y ago
    Nah. If you have a bot that invests 10K, and has a reaction time of a minute, and invests in 10-100 equities with, say a couple of months each time, then you are in a completely different world than big bank bots. Its like Warren said, its easy to invest a million.
    - Closi 3y ago
      It's easy to invest a million in some index fund, but it's not easy to beat the market.
- anonymoushn 3y ago
  Obviously nobody should trade cryptocurrencies, but cryptocurrency exchanges tend to have unusually equitable market access for solo quants compared to US equities or whatever.

known 3y ago

[dead]

namaria 3y ago

They get retroactively anointed 'good investors' due to survivor bias.

teekert 3y ago
And then out of the thousands of traits present in these investors, the 5 that this selected group happen to share, and seems quite logical, at times seem insightful, will end up in a blog.
- chii 3y ago
  and also, the millions who _do_ share these traits but fail(ed) at investing.
- blitzar 3y ago
  It is not too different from the "Billionaires do these 10 things every day. Do them and you too will be a billionaire."

MezzoDelCammin 3y ago

Let me guess : "post platitudes on HN"?

tchalla 3y ago

> Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper. https://business.columbia.edu/cgi-finance/chazen-global-insights/superinvestors-graham-and-doddsville https://business.columbia.edu/cgi-finance/chazen-global-insi...

ShawnL30 3y ago

The ability to invest is a privilege, since most of us cannot afford to do nothing but learn and wait until a good investment opportunity shows up.

BazookaMusic 3y ago

Insider trading sometimes

mg 3y ago

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a photo of Charlie Munger and Warren Buffett. Does this imply that they are "better" than the average investor? Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Now some might say that it is "easy" to outperform the market with a single stock. Pick a very volatile one and your chances are 50%. And that Munger and Buffett made many investments. And that the chance is low to make that many investments and in total still beat the S&P500. Ok. But how low is the chance for the number of trades Berkshire did? Maybe it is totally normal, that some investors do that many trades and beat the S&P500 by pure chance. By the way, a QQQ certificate which contains the 100 largest tech companies also outperformed Berkshire and had about twice their performance over the last 20 years.

lucas_membrane 3y ago
Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!
- Cthulhu_ 3y ago
  Survivorship bias though; did they report on anyone that held the account for a long time and lost money? But yeah, this is the generalised advice; spread your investments, index funds, and wait. The market's trend over long term always goes up. It's just that it's more of a retirement plan than a get rich quick plan; people want or need money early in life, buy a house, be financially secure. I think it was better for everyone back when, when the Simpsons started airing, where a single low education level income was enough to buy a house and support a whole family. That was wealth.

jacob_rezi 3y ago

They come to the office and ask your employees what they are working on and they relate their experiences to each employee individually. This is for a small company of 6

jacquesm 3y ago

They're more lucky.

drumhead 3y ago

It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.

H8crilA 3y ago
Value investors pretty much do not use risk control as known from shorter term trading. They just buy low and sell when facts change (down) or prices change (up).
- drumhead 3y ago
  I think diversification is a key tenet of value investing. The margin of safety applies to the individual company but that doesn't guarantee success, so a diversified portfolio is one key method of reducing risk.
  - H8crilA 3y ago
    Right, but that diversification is into 5 or 10 companies. Risk management that you can find in various trading shops is a much more involved process than that.
rrrazdan 3y ago
You are right that position sizing is important but for the opposite reason. Knowing your winners and then full on concentrating in them is statistically a big part of what makes successful winners.
- drumhead 3y ago
  For traders maybe, because they pyramid the position on the back of any gains made. But you also don't want to have so much invested in one company that it becomes make or break. A 10% loss on 5% of your portfolio is way more manageable than 10% on 50% of your portfolio.

GuB-42 3y ago

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you will mostly end up with reasonable market-rate returns. But to be really good, you don't just need a good betting strategy, you also need the house edge.

gorbachev 3y ago
Nobody is lucky for as long as Berkshire Hathaway has been successfully doing this.
- simiones 3y ago
  Sure, that's why there are three more items on the list.
- quickthrower2 3y ago
  If that is the metric then the best investors are not passive stock picking investors, they run businesses and hammer out deals. Which in some sense just make them the best (or among the best) corporations.
Cthulhu_ 3y ago
Like with gambling or startups, out of every 1000, maybe 1 will make it big; out of those, a fraction will choose to become famous / a known name, and that's the survivorship bias that gets thousands more amateur investors to try their hand and get rich quick, turning their life savings into another fraction of a percentage of these top investors' accounts. For most of us regular people, slow and safe investments are the way to go. Get savings, get some interest on that to at least partially counteract inflation, buy a house, avoid debts, loans and subscriptions as much as you can. And I'm aware that all that sane money management advice isn't even an option for a lot of people.
zone411 3y ago

psiops 3y ago

I guess it pays to be temperamentful and "do nothing" if the pool of money you get to play with is huge to begin with. If you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.

chii 3y ago
> f you have limited funds to invest with, the temptation to take risk to make a significant profit looms large. aka, greed.

Panzer04 3y ago

I think the strongest edge one can have is to be able to invest independent of any market sentiment. If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway. It is far too easy to get wrapped up into wanting the best possible return by buying at the lowest price, and selling at the highest price. The reality is that's near impossible. However, buying companies that by the numbers indicate a 20% return, even if they night get cheaper in a crash, is a decent way to actually get a 20% return. The problem is those kinds of investments only show up with severe uncertainty and negative sentiment. By the time they feel good to invest in the price has reflected that change in sentiment. Of course, this all presupposes skill at evaluating these businesses accurately and reliably, so losers don't drag you down when the negative sentiment is actually correct :/.

chii 3y ago
> If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway. and take the risk that you just overlooked something the rest of the market has priced in. But i guess to invest, one must have conviction that they're right about their investment thesis.

starbugs 3y ago

> 1. Temperament [...] My observation of many investors over my 20+ years of professional investing has led me to believe that temperament cannot be learned I would be interested in whether this is a justified belief or not and whether there is actual research on that topic. Does anyone have any insights on this?

kqr 3y ago
All I know in relation to this is that some Parkinson's medications can increase the desire to gamble with high risk, which I guess is a negative temperament for an investor.

isomorph 3y ago

(I thought it said inveNtors, not inveStors... That would be exciting to read too)

deleted 3y ago

[deleted]

alangibson 3y ago

The only reasonable definition of "good investor" is consistently beating the market. Buffet is close but not perfect. Does anyone know of an investor with a better record?

wouldbecouldbe 3y ago
Yeah I think the Renaissance fund.
- chii 3y ago
  I think they managed to use data and pattern recognition to find arbitrage opportunities between different chains of commodities (and stocks perhaps). It's also why they have limits on the fund's size - they cannot move the market or risk breaking that arbitrage in the first place (where breaking it also could mean their trades show up and get noticed by a third party).

YChacker100 3y ago

Who do you consider to be the best investors?