Some years ago hedge fund manager Mark Sellers of Sellers Capital gave a great speech to a group of Harvard MBA students titled – So You Want To Be The Next Warren Buffett? How’s Your Writing? Sellers did not mince his words when he discussed the difficulty of becoming a great investor that can compound returns at 20% per year saying:
“I know that everyone in this room is exceedingly intelligent and you’ve all worked hard to get where you are. You are the brightest of the bright. And yet, there is one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less.”
Here’s an excerpt from that speech:
One thing I will tell you right off the bat: I’m not here to teach you how to be a great investor. On the contrary, I’m here to tell you why very few of you can ever hope to achieve this status.
If you spend enough time studying investors like Charlie Munger, Warren Buffett, Bruce Berkowitz, Bill Miller, Eddie Lampert, Bill Ackman, and people who have been similarly successful in the investment world, you will understand what I mean.
I know that everyone in this room is exceedingly intelligent and you’ve all worked hard to get where you are. You are the brightest of the bright. And yet, there ís one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less.
And I’m adjusting for the fact that you all have high IQs and are hard workers and will have an MBA from one of the top business schools in the country soon. If this audience was just a random sample of the population at large, the likelihood of anyone here becoming a great investor later on would be even less, like 1/50th of 1% or something. You all have a lot of advantages over Joe Investor, and yet you have almost no chance of standing out from the crowd over a long period of time.
And the reason is that it doesn’t much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet almost none of them end up compounding at 20% or 25% over their careers.
I know this is a controversial thing to say and I don’t want to offend anyone in the audience. I’m not pointing out anyone specifically and saying, “You have almost no chance to be great”. There are probably one or two people in this room who will end up compounding money at 20% for their career, but it’s hard to tell in advance who those
will be without knowing each of you personally.
On the bright side, although most of you will not be able to compound money at 20% for your entire career, a lot of you will turn out to be good, above average investors because you are a skewed sample, the Harvard MBAs. A person can learn to be an above-average investor. You can learn to do well enough, if you’re smart and hard working and educated, to keep a good, high-paying job in the investment business for your entire career.
You can make millions without being a great investor. You can learn to outperform the averages by a couple points a year through hard work and an above average IQ and a lot of study. So there is no reason to be discouraged by what I’m saying today. You can have a really successful, lucrative career even if you’re not the next Warren Buffett.
But you can’t compound money at 20% forever unless you have that hard-wired into your brain from the age of 10 or 11 or 12. I’m not sure if it’s nature or nurture, but by the time you’re a teenager, if you don’t already have it, you can’t get it. By the time your brain is developed, you either have the ability to run circles around other investors or you don’t.
Going to Harvard won’t change that and reading every book ever written on investing won’t either. Neither will years of experience. All of these things are necessary if you want to become a great investor, but in and of themselves aren’t enough because all of them can be duplicated by competitors.
7 Traits Of Highly Successful Investors
The way I see it, there are at least seven traits great investors share that are true sources of advantage because they can’t be learned once a person reaches adulthood. In fact, some of them can’t be learned at all; you’re either born with them or you aren’t.
1. The ability to buy stocks while others are panicking and sell stocks while others are euphoric.
2. The second character trait of a great investor is that he is obsessive about playing the game and wanting to win.
3. A third trait is the willingness to learn from past mistakes.
4. A fourth trait is an inherent sense of risk based on common sense.
5. Great investors have confidence in their own convictions and stick with them, even when facing criticism.
6. It’s important to have both sides of your brain working, not just the left side (the side that’s good at math and organization.)
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.
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. The seven traits above can’t be.
You can find the entire speech here – So You Want To Be The Next Warren Buffett? How’s Your Writing?
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It’s worth noting that Mark Sellers had his ass handed to him one year after this speech. Mark Sellers, himself, proved to not be a great investor.