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Mark Seirer is the founder of Hedge Fund Sellers Capital Fund, who previously served as a lead equity strategist at Morningstar.
This is his 2008 speech at Harvard University, and unlike most chicken soup speeches, Sellar came up and poured cold water on the students present, saying that "very few of you dare to be a great investor."
"If your competitors know your secret and can't copy it, it's a structural advantage, a 'moat,'" he argues." ”
So what is the necessary competitive advantage for investors?
"They have to do with some psychological factors that are deeply ingrained in your head, a part of you, and even if you read a lot of relevant books, you can't change them."
In Cyrell's view, there are at least 7 traits that are common to great investors, a real resource of advantage, and something you can no longer get once you reach adulthood.
While Cyrell says that several of these traits are not even possible to learn, what it means for us is to understand the extraordinary value that "mental barriers" play in investing.
For example, buying stocks decisively when others are panicking and selling stocks when others are blindly optimistic;
For example, in the investment process, in the midst of great ups and downs, there is no change in investment ideas.
In investment, we should also tap the potential in this area, maybe it is rooted in the genes, who knows.
The following is the full text of this classic speech, shared by smart investors.
Very few of you dare to be a great investor
What I'm about to tell you is this: I'm not here to teach you how to be a great investor. Instead, I'm here to tell you why very few of you dare to be like this.
If you've spent enough time studying investment giants like Charlie Munger, Warren Buffett, Bruce Bockwitz, Bill Miller, Eddie Lambert and Bill Ackerman, you'll understand what I mean.
I know that everyone here has an intelligence that surpasses ordinary people, and it has been painstakingly worked hard to reach today's level. You are the smartest of the smart people.
But even if you don't listen to anything else I've said today, at least one thing to remember: You have little chance of becoming a great investor. You have very, very low likelihood, say 2%, or even less.
This already takes into account the fact that you are both highly intelligent and hard-working people and will soon be able to get an MBA from one of the top business schools in the country.
If you're here just a random sample taken from a large population, you're less likely to be a great investor, say one in 5,000.
You'll have more of an advantage than the average investor, but you'll have little chance of standing out from the crowd in the long run.
The reason for this is that what your IQ is, how many books, newspapers and magazines you have read, how much experience you have, or how much experience you will have in your future career, does not work.
Many people have these qualities, but almost no one achieves a compound return of 20% or 25% throughout their careers.
I know there are people who disagree with that, and I have no intention of offending all of you. I'm not pointing at someone and saying, "You have almost no chance of being great." ”
There may be one or two people in this room who can achieve a 20% compound return in their careers, but it's hard to assert in advance who that would be without knowing you guys.
On the bright side, while most of you won't be able to achieve a compound return of 20 percent in your career, you'll still do better than the average investor because you're an MBA at Harvard.
A person can learn how to become an investor above the average level. If you're smart, hardworking, and educated, you can do well enough to keep a good and well-paid job in the investment world. You don't have to be great investors, you can make millions of dollars.
Through a year of hard work, high IQ and hard work, you can learn to surpass the average at certain points.
So don't be frustrated by what I'm saying today, even if it's not Buffett, you're going to have a truly successful and well-paid career.
But you can't grow your wealth at a compound return of 20% forever, unless your brain has certain qualities at the age of eleven or twelve.
I'm not sure if it's innate or acquired, but if you don't have that trait by the time you reach your teenage years, then you won't have it again.
You may or may not have the ability to outperform other investors before brain development is complete. Coming to Harvard doesn't change that, not reading every book on investing, and not years of experience. If you want to be a great investor, those are just the necessary conditions, but they are not enough, because they can all be copied by competitors.
To make an analogy, consider the various competitive strategies of the corporate world. I'm sure you've taken or will take a strategy course here.
You might study Michael Porter's articles and books, which I taught myself before I started business school. I have benefited a lot from his books and still always use this knowledge when analyzing companies.
Now, as the CEO of a company, what kind of advantages can protect you from brutal competition? How do you find the right points to build what Buffett calls "economic moats"?
If technology is your only advantage, then it is not a resource for building a "moat" because it can and will always be replicated.
In this case, your best hope is to be acquired or go public and sell all your shares before investors realize you don't have a sustainability advantage.
Technology is the advantage of a short lifespan. There are others, like a good management team, an encouraging advertising campaign, or a hot trend. The advantages these things create are temporary, but they change with the times and can be replicated by competitors.
The "economic moat" is a structural advantage, like Southwest Airlines in the 1990s. It's deeply ingrained in the company's culture and every employee, and even though everyone knows more or less what Southwest does, no one else can replicate it.
If your competitors know your secret and can't copy it, that's a structural advantage, a "moat."
Where did your "moat" come from?
In my opinion, there are actually only 4 kinds of "economic moats" that are difficult to replicate and can last.
One is economies of scale, such as Walmart, Procter & Gamble, and Home Depot.
Another resource is network effects, such as eBay, MasterCard, Visa, or American Express.
The third is intellectual property, such as patents, trademarks, government licenses, or customer loyalty, and Disney, Nike, and Genentech are examples of this.
The last is the high cost of user transfers, which payroll processing services companies Paychex and Microsoft benefit from because the cost of switching users to other products is really high.
Just as a company either builds a "moat" or puts up with mediocrity, the investor needs some advantage over its competitors or he will be reduced to mediocrity.
There are now more than 8,000 hedge funds and 10,000 mutual funds, and millions of individual investors every day trying to play the stock market. How do you have an advantage over these people? Where did the "moat" come from?
First, reading a lot of books, magazines, and newspapers is not a resource for building a "moat." Anyone can read. Reading is naturally extremely important, but it does not give you a strong advantage over others, it can only make you not fall behind others.
People in the investment community have the habit of reading a lot, and some people read more than they do, but I don't think there is a positive correlation between investment performance and the amount of reading, and after your knowledge accumulation reaches a certain key point, reading more will show a diminishing return effect.
In fact, reading too much news can hurt your investment performance because it means you're starting to believe all the crap journalists pour out for newspaper sales.
In addition, even if you are an MBA at a top school, or have a certified financial analyst qualification, a doctorate, a CPA certificate, and dozens of other possible degrees and certificates, it is impossible to make you a great investor. Harvard can't teach you to be that kind of person, neither can Northwestern, the University of Chicago, Wharton, Stanford.
I would say that an MBA is the best way to learn how to get the average return on the market precisely. You can greatly reduce mistakes along the way through the study of MBA. This often allows you to get a good salary, even if you're getting further and further away from being a great investor.
You can't spend money to buy or become a great investor by reading and learning. None of this will make it easier for you to build a "moat", it will only make it easier for you to get an invitation to enter the game.
Experience is another overrated thing. Experience is important, but it's not a resource to gain a competitive advantage, it's just another must-have. After the experience accumulates to a certain point, its value begins to decline in return. If not, then 60, 70 and 80 should be the golden age of all great money manipulators.
We all know that this is not the case. So a certain level of experience is necessary to play the game, but at a certain point, it doesn't help any more. It is not an economic "moat" for investors.
Charlie Munger said that you can discern who can "understand" correctly, and sometimes that can be someone with almost no investment experience.
So what is the necessary competitive advantage for investors? Just like a company or an industry, the "moat" of investors should also be structural.
They are related to some psychological factors (note: this is what I often call mental barriers), and psychological factors are deeply rooted in your brain, a part of you, even if you read a lot of related books can not change.
There are 7 traits that are common to great investors
I think there are at least 7 traits that are common to great investors, are real dominant resources, and are things you can no longer get once you become an adult.
In fact, several of these qualities are not even possible to learn, you must be born with them, if you are not born to find them.
The first trait is the ability to buy stocks decisively when others are panicking and sell them when others are blindly optimistic.
Everyone thought they could do it, but when October 19, 1987 came (the famous "Black Monday" in history), the market collapsed and almost no one had the courage to buy stocks again.
And in 1999 (the year following the Nasdaq crash), the market was rising almost every day, and you wouldn't allow yourself to sell your stock because you were worried about falling behind.
The vast majority of people who manage their wealth have an MBA and a high IQ and have read a lot of books. By the end of 1999, these people were also convinced that stocks were overvalued, but they could not allow themselves to take their money off the table, precisely because of what Buffett called "institutional imperative."
The second trait is that great investors are the kind of people who are extremely fascinated by the game and have a strong desire to win.
They don't just enjoy investing – investing is their life.
When they wake up in the morning, even if they are still half-asleep, the first thing that comes to mind is the stock they have studied, or the stock they are considering selling, or what the biggest risk to their portfolio will face and how to avoid it.
They usually get bogged down in their personal lives, even though they may really like other people and don't have much time to communicate with each other. Their minds are always in the clouds, dreaming of stocks.
Unfortunately, you can't learn this attachment to something, it's innate. If you don't have this obsessive-compulsive disorder, you can't be the next Bruce Bockwitz (founder of Fairholme Funds, stock selection ideas are heavily influenced by Buffett, portfolio concentration, low turnover rate, rarely cross the line).
The third trait is a strong willingness to learn from past mistakes.
This is difficult for people to do, and what makes great investors stand out is this strong desire to learn from their past mistakes to avoid repeating them. Most people will ignore the stupid decisions they've made and keep going forward.
The word I want to use to describe them is "repression." But if you ignore past mistakes instead of analyzing them holistically, there's no doubt you'll make similar mistakes in your future career. In fact, even if you do analyze it, repeated mistakes are hard to avoid.
The fourth trait is an innate sense of risk based on common sense.
Most people know the story of the American Long-Term Capital Management Corporation (one of the four major international hedge funds in the mid-1990s and on the verge of bankruptcy in 1998 due to the Russian financial crisis), a team of sixty or seventy PhDs with the most sophisticated risk analysis model that failed to uncover what seemed obvious in hindsight: They took too high a risk.
They never stop and ask themselves, "Hey, while computers think this works, does it really work in real life?" "This ability may not be as common in humans as you might think." I believe that the best risk control system is common sense, but people will still be accustomed to listening to computers and letting themselves sleep peacefully. They ignore common sense, and I've seen this mistake play out again and again in the investment world.
The fifth trait is that great investors have absolute confidence in their own ideas, even in the face of criticism.
Buffett has insisted on not throwing himself into the crazy internet craze, despite public criticism that he ignores tech stocks. While everyone else gave up value investing, Buffett remained unmoved.
Barron's made him a cover character for this, with the headline "Warren, where did you go wrong?" Of course, this was further proof of Buffett's wisdom in hindsight, and Barron's became the perfect negative textbook.
Personally, I'm surprised at how little confidence most investors have in the stocks they buy. According to Kelly Formula (a mathematical formula that can be used to determine investment and gambling risk), 20% of a portfolio can be placed on a stock, but many investors only put 2%.
Mathematically, using Kelly's formula, putting a 2% investment in a stock is equivalent to betting that it has only a 51% chance of going up, and a 49% chance of going down. Why waste time making this bet?
The gang is taking $1 million a year and are just looking for which stocks have a 51% chance of rising? It's just sick.
The sixth trait is that both the left and right brains are good to use, not just the left brain (which is good at math and organization).
In business school, I used to meet a lot of talented people. But I was shocked that finance majors don't write anything worthwhile, and they don't see things creatively.
Later, I understood that some very smart people think with only half their brains, which is enough to make you stand in the world, but if you want to be an innovative corporate investor who thinks differently from the mainstream population, it is not enough.
On the other hand, if you're the right-brain dominant, you're likely to hate math and then generally won't be able to get into finance. So it's likely that the financial person has a very developed left brain, and I think that's a problem. I believe both brains of a great investor are functioning.
As an investor, you need to do calculations, have logical and reasonable investment theories, which are all things that your left brain does.
But you also need to do something else, like judging the company's management team based on subtle clues.
You need to calm down and sketch out the big picture of the current situation in your mind, rather than analyzing it to the death.
You need to have a sense of humor, a humble mindset, and basic common sense.
And most importantly, I think you have to be a good writer too.
It's no accident that Warren Buffett, one of the most prominent writers in the business world, is one of the best investors of all time.
If you can't write clearly, I don't think you can think clearly either. If you can't think clearly, you're in trouble.
Many people have a genius IQ but can't think clearly, even though they can calculate the price of a bond or option.
Last but not least, and least commonly, the ability to change investment ideas in the midst of ups and downs in the investment process.
This is almost impossible for most people to do. When stocks start to fall, it's hard to stick around and take losses without selling stocks. When the market as a whole falls, it is difficult to decide to buy more shares to dilute the cost, or even to decide to put money back into stocks.
People don't like to suffer temporarily, even if there are better benefits in the long run.
Few investors can cope with the short-term volatility that high returns must experience. They equate short-term volatility with risk. This is extremely irrational.
Risk means that if you bet on the wrong treasure, you will have to lose money. And fluctuations up and down in a relatively short period of time do not equal losses, and therefore are not risks, unless you panic when the market falls to the bottom and are frightened by losses. But most people don't see things that way, and their brains don't allow them to think that way.
Panic instincts invade and then cut off the ability to think normally.
I must affirm that once one enters adulthood, one can no longer learn these qualities. At this time, your potential to become a Premier Investor in the future has been determined. This potential can be acquired through exercise, but cannot be built from scratch because it is closely related to the structure of your brain tissue and the experiences of childhood.
This is not to say that financial education, reading, and investment experience are not important. These are important, but only qualify you to enter the game and play it. Those are things that can be copied by anyone, and the above 7 qualities are impossible.
Editor: Hui Yang Yang Editor: Ai Xuan
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