Say yes to short term pain

March 12, 2020

Introduction

It is so challenge to go through the bear market and see portfolio drop in one day, more than 7%. I know that people are risk aversion. It is also a good idea to review 7 traits for a good investor.

Say yes to short pain

Here is the article I like to read again.


I like to review the following trait #7, and work on some research on arguments from hedge fund manager Mark Sellers.

Trait #7

And finally 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. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down.

People don't like short term pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns.

They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss.

But most people just can't see it that way; their brains won't let them. Their panic instinct steps in and shuts down the normal brain function.

I would argue that none of these traits can be learned once a person reaches adulthood. By that time, your potential to be an outstanding investor later in life has already been determined.

It can be honed, but not developed from scratch because it mostly has to do with the way your brain is wired and experiences you have as a child. That doesn't mean financial education and reading and investing experience aren't important.

Those are critical just to get into the game and keep playing. But those things can be copied by anyone.

Mark Sellers, Intelligent Investor

Here is the article.

What I like to do is to train myself, and understand better about Mark Sellers, and how a hedge fund manager thinks. I learn something from Mark Sellers's talk to Harvard MBAs.

Most important, I believe you need to be a good writer - Mark Sellers

Here is the article.

Look at Buffett; he's one of the best writers ever in the business world. It's not a coincidence that he's also one of the best investors of all time. If you can't write clearly, it is my opinion that you don't think very clearly. And if you don't think clearly, you're in trouble. There are a lot of people who have genius IQs who can't think clearly, though they can figure out bond or option pricing in their heads.

In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn't write worth a damn and had a hard time coming up with inventive ways to look at a problem. I was a little shocked at this.

I later learned that some really smart people have only one side of their brains working, and that is enough to do very well in the world but not enough to be an entrepreneurial investor who thinks differently from the masses.

On the other hand, if the right side of your brain is dominant, you probably loathe math and therefore you don't often find these people in the world of finance to begin with. So finance people tend to be very left-brain oriented and I think that's a problem. I believe a great investor needs to have both sides turned on.

As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working.

But you also need to be able to do things such as judging a management team from subtle cues they give off. You need to be able to step back and take a big picture view of certain situations rather than analyzing them to death. You need to have a sense of humor and humility and common sense. And most important, I believe you need to be a good writer.