Articles

People often call into the radio show and ask me, “What makes for a great investor?”

I’ve known a handful of great investors over the years, and I’ve known plenty of bad ones. It’s pretty clear why the good ones are good—they all have a few things in common.

• The first is intelligence—they’re super-smart people.

There is a correlation between intelligence and investing ability. But the correlation is somewhat weak. I know lots of smart people who are terrible investors, and I know some dumb people that are great investors.

• The second attribute is experience—they’ve simply been doing it longer than anyone else.

A lot of people get into the money management business when they are young, and they haven’t traded through a serious, prolonged downturn yet. Those downturns are when you learn the most important lessons.

I’ve worked in the financial world for 22 years—I started in 1999, in the middle of the first dot-com bubble. I have seen a lot in my career.

Here's a short list of things I’ve traded through…

The housing bubble, the European debt crisis, the flash crash, the cotton bubble, beans in the teens, rare earths, uranium, Ebola, the yuan devaluation, zero rates, negative rates, oil at 140, oil negative, COVID-19, Bitcoin, the Tesla squeeze, the cannabis bubble, security stocks in 2003, Ford debt downgrade, SARS, 9/11, the Iraq War, Trump’s election, Argentina (multiple times), Puerto Rico, Venezuelan bonds, and European banks.

• The list goes on…

And I remember. I remember how the market behaved during each of these events. And I remember how individual stocks behaved.

Experience counts for a lot, which is strange, because there aren’t too many people over 40 on trading floors. The finance world still has an obsession with hiring young people—mostly because they have an enlarged appetite for risk.

You get old; you get careful. It’s a pretty good argument for hiring old people.

• And finally, the most important attribute of great investors is emotional fitness.

A big part of this is humility—there is nothing more dangerous than overconfidence. Yet we lavish attention on people who speak with certainty.

I find that the most confident financial forecasts are typically the most wrong. And the forecasts that people utter nervously with numerous disclaimers tend to be the most right.

Early in my career, I read all of the Market Wizards books. In those books, great investors frequently talked about how important it was to treat investing as an academic problem, not an epic struggle. They talked about how you shouldn’t get angry and you shouldn’t get upset.

At the time, I thought this was crap. But I was wrong. Ever since I got my heart rate down, my investment performance has improved dramatically.

I’m a slow learner. It’s taken me 20-plus years to learn this stuff. But I can bring you up to speed much faster than that. If you want to learn how to invest, I’ve put together a free report to show you how. You can access your copy by clicking here.

• One last thing that most great investors have in common…

They all have money already. It’s hard to make money if you’re struggling to pay the mortgage. If you take risk, make sure you take risk from a position of “screw you.”

Jared Dillian