The Three Traits Shared By The World’s Best Investors

What is it that sets the greatest investors apart from all others? Skill, undoubtedly. Luck can also play a role. But beyond that, the world’s best investors have three traits in common.

Warren Buffett, Peter Lynch, and Benjamin Graham are some of the most famous and successful modern investors. Their investing strategies have three things in common: discipline, patience, and knowledge.

Successful investing takes time, discipline, and patience. No matter how great the talent or effort, some things just take time.

Discipline

Buffett, Lynch, and Graham have/had a proven investment strategy and the conviction to commit to it no matter the circumstances. A large part of that is staying objective and avoiding emotional decisions. They aren’t swayed by social pressure and media coverage into chasing the new hot thing or buying a stock they would not otherwise consider.

On the other hand, they are not afraid to be contrarian investors. The mantra “be greedy when others are afraid and afraid when others are greedy” has guided these elite investors Sticking to what they know and resisting FOMO are big reasons they have made millions of dollars and outperformed the market and other investors.

Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.

Patience

“Investing for the long run” is a mantra that runs through the philosophy of these three investing legends. They believe that if you believe in a company’s fundamentals enough to invest in it, you should have the patience to see it through until it pays off. Every company and every market will have down years, which is why a buy-and-hold strategy is important. If the market undervalues a good company now, the share price will eventually rise to match its true worth.

One reason these three investors have logged such large gains is that they have the patience to hold on to winning investments instead of cashing out for quick profits. On the flip side, they don’t let the sunk-cost fallacy cost them money. When a company's fundamental conditions change, they don’t hesitate to cut their losses and move on to the next investment.

I have no idea on timing. It’s easier to tell what will happen than when it will happen.

Knowledge

Buffett, Lynch, and Graham recognize the importance of understanding a company's value before deciding whether to invest. They approach any potential investment from several angles, identifying risks and opportunities. They don’t invest in a company before knowing whether the price reflects (or preferably understates) its value. This requires thorough research into a company’s fundamentals. They look for companies with low debt, high profit margins, good cash flow, and a low P/E ratio.

The quality of the company’s management is also important. Good management can make a company shine, while bad management can drag a company down. Apple spent a decade on the verge of failure due to bad management decisions until Steve Jobs returned as CEO to pivot the company to consumer electronics, transforming Apple into the tech powerhouse it is today.

Buffet, Graham and Lynch research whether the company has good long-term growth potential. To be considered an investment target, a company needs a competitive advantage. This can be a strong brand, a dominant position (or ability to be one) in an area with a high barrier to entry, or a large, loyal customer base.

Overall, they won’t invest in any company until they can concisely explain what it does and why they would invest in it.

“If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.”

Adherence to these three traits of the best investors in the world will give you a better chance of succeeding in the stock market than the highly intelligent person that doesn’t. Warren Buffett summed it up like this:

“If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament. You need to be able to detach yourself from the views of others or the opinions of others.”