The single most important quality of successful investing is: Psychology! You can subscribe to the best trading system in the world. But if you don’t follow its rules consistently, you won’t make much money. The weakest link in any financial trader’s system is his own psychology. Successful investing is more emotional stability than rocket science. As Warren Buffett has said: “If you have a 150 IQ, sell 30 points to someone else. You need to be smart, but not a genius.”
Another important quality is to combine history and psychology: History + Psychology = Patience.
In practice, this means limiting the number of ideas you act on. Global investor Jim Rogers mentioned once: “One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial ‘shooting fish in a barrel’.”
Prominent Warren Buffett calls this “waiting for the fat pitch.” Buffett is doing just that today. His Berkshire Hathaway is sitting on $128 billion in cash. And it is a drag on Berkshire’s returns today. Just as its $15 billion was in 1998 and its $43 billion was in 2004 before Buffett made great deals to boost Berkshire’s long-term returns. Buffett knows his history and has the psychological discipline to be patient.
Like Rogers, Buffett is waiting for the fish in the barrel. You should do the same!
Sven Franssen