Reflections on the Ten Attributes of Great Investors

1. Be numerate (and understand accounting).

Yet investing is an inherently social exercise. As a result, prices can go from being a source of informationto a source of influence.  Great investors don’t get sucked into the vortex of influence. This requires the trait of not caring what others think of you, which is not natural for humans. Indeed, many successful investors have a skill th... See more

Keith Stanovich, aprofessor of psychology, likes to distinguish between intelligence quotient (IQ), which measures mentalskills that are real and helpful in cognitive tasks, and rationality quotient (RQ), the ability to make gooddecisions. His claim is that the overlap between these abilities is much lower than most people think.

Learning to focuson process and accept the periodic and inevitable bad outcomes is crucial.Great investors recognize another uncomfortable reality about probability: the frequency of correctnessdoes not really matter (batting average), what matters is how much money you make when you are rightversus how much money you lose when you are wrong (slugg... See more

Proper portfolio construction requires specifying a goal (maximize sum for one period or parlayed bets),identifying an opportunity set (lots of small edge or lumpy but large edge), and considering constraints(liquidity, drawdowns, leverage).

8. Know the difference between information and influence.

7. Beware of behavioral biases (minimizing constraints to good thinking).

Accounting is the language of business and you need to understand it to appreciate economic value and to assess competitive positioning. Investors face a slew of psychological challenges. Perhaps the most difficult is updating beliefs when new information arrives. Position sizing and portfolio construction still do not get the attention they warran... See more

Intro highlights:I believe my lack of business education was an asset because it encouraged me to ask a lot of questions and  to think from first principles.

The goals of  financial statement analysis are twofold. The first is to translate financial statements into free cash flow. The  second goal of financial statement analysis is to make a link between a company’s strategy and how  it creates value. One simple way to do this is to compare, line by line, two companies that are in the sam... See more