I was talking to a friend the other day who asked me what I thought made a good investor.
My response was immediate: “Discipline is the key attribute to being a good — a.k.a. successful — investor.” My friend followed up by asking what makes a bad investor, other than lack of discipline. I answered almost as fast. “There are two things that eventually wipeout an investor,” I said. “And if the investor has both, his investment career has a shorter lifespan than a fruit fly. The two worst qualities to have as an investor are being arrogant and being emotional.”
Discipline does not imply inflexibility, and most times, arrogance is inflexibility. I find that my most successful clients and investors have a methodical decision making process. Warren Buffett is a famous 82-year-old investor. He has a detailed process to how he selects the stocks/companies in his portfolio and how he manages the investment in those companies. Buffett from time to time has made some very bad investments, but his discipline has allowed him recover, even though the specific investment did not recover. You see, diversification is important and diversification is always part of a successful investment discipline. Part of my investment discipline is to only purchase U.S. companies and those that pay a dividend above a specific threshold.
Being emotional might be entertaining, but rarely pretty. One of my earlier boss’s favorite expressions was, “Never let them see you sweat.” This is one of the reasons I am a successful negotiator, I am not afraid of saying no, and I never take hearing no as personal. I learned that being calm and the voice of reason is far more productive than going around screaming that your hair is on fire. I have had my share of financial mistakes, but I have taken them in stride and learned from them and adjusted my investment discipline. For example, I never buy airline stocks due to my personal investment experience and my personal experience. I came to this conclusion years before Buffett lost almost $600 million in U.S. Air. I would like to think I could have saved him from that loss.
Being arrogant is never productive nor successful. If you have any doubts, I give you Donald Trump. Being arrogant to me means that when presented with the facts, you continue to believe you are correct or worse that you will be correct in spite of the facts. The disciplined investor always takes in the facts. He or she may not like the facts, but the facts are the facts. Once Trump was presented with a Hawaiian birth certificate, he declared that it was not official looking enough. Official looking? He should see my birth certificate typed on legal size paper two-and a half years after my birth during a revolution with a bunch of stamps along the edge.
I have become a fan of the PBS series, Downton Abbey. The arrogance of the upper class in its rigidity of thought and disapproval of being “self-made” was the downfall of the British Empire, at least economically. We Americans respect being “self-made” more than we respect “old money” — well, almost all Americans feel this way. I was at a cocktail party in Nantucket years ago, and these two guys were discussing how simply dreadful all these Wall Street types were with all their new money bidding up home prices, tearing down lovely homes to build mansions to their egos. The other guy said, “Nouveau riche, the whole lot of them.” As a Wall Street type, I said, “Gentlemen don’t you think that nouveau riche is better than non-riche?”
You see, it was the ‘nouveau riche’ moving into Nantucket that was building the infrastructure, increasing their property values and lowering their real estate taxes.
Discipline is an important virtue and should be revered, respected, emulated and exercised. I know I have discipline in my personal life, professional life, now I am trying to exercise it at my new gym.
The opinions and recommendations expressed herein are those of Mr. Garrido and do not necessarily reflect those of the firm and are subject to change without notice. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved.