Li Lu: The Right Temperament

Johnny HopkinsBruce Greenwald, Li LuLeave a Comment

In his latest fireside chat with Bruce Greenwald, Li Lu discusses the temperament required to be a successful investor. Here’s an excerpt from the chat:

It is a hallmark of a good investor that you can sit through watching your portfolio down by 50 and not being affected at all. On the other hand, other side of the coin, is that you’re equally unaffected when everybody around you are making fast money, fast and furious, a lot of them. Now you’re really seemingly totally left behind.

So that’s really part of the temperament that most people don’t have and that’s why not everybody can succeed in this game of the investment, and so to succeed in this game and require certain temperament and a certain understanding of human nature.

Also a certain common sense approach and knowing that investment returns eventually will mirror the actual business return, by actual businesses. And we know in real life real businesses don’t really change by day, by hour, by week, by month, it took years for them to really either go up or down and so you should expect your investment result coming over slowly gradually over a long period of time.

So the short-term phenomena should not really impact you as much either on the up or down and so if you have that basic temperament and basic approaches what you’re going to find is that both the euphoria as well as the crush actually can serve you well and this is really going back to Ben Graham’s basic concept of Mr Market.

That is there to serve you not to instruct you except in real game of the investment those phenomena both on the up and down tend to be quite extreme and testing.

And so the other thing that will be very testing is that you really do need to understand the business itself and if you really try to pretend you understand, and you’re really driven by something else other than deep understanding you’ll be tested.

And so that’s the salient nature of the financial market and sometimes they almost feel that they existed to really, to catch human weaknesses that if you really don’t understand something, that you pretend to, you will be busted at some point.

You can watch the entire chat here:

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