What Do the Best Investors Do That the Rest Don’t?

Nobody is lucky for as long as Berkshire Hathaway has been successfully doing this.

Like with gambling or startups, out of every 1000, maybe 1 will make it big; out of those, a fraction will choose to become famous / a known name, and that's the survivorship bias that gets thousands more amateur investors to try their hand and get rich quick, turning their life savings into another fraction of a percentage of these top investors' accounts.

For most of us regular people, slow and safe investments are the way to go. Get savings, get some interest on that to at least partially counteract inflation, buy a house, avoid debts, loans and subscriptions as much as you can. And I'm aware that all that sane money management advice isn't even an option for a lot of people.

Plenty of evidence contradicts the efficient market hypothesis, showing that it's possible to outperform the average. The market's late response to Covid is a case in point.

The gambling analogy holds up only when you compare it to poker or sports betting, where you can make money if you're better than others.

Your comment sounds cynical but I totally agree with you. As a long time (now ex) trader I can tell you that the professionals have a tremendous information advantage over the retail investor. And even then they don't make money consistently. Edge is everything.

Regarding insider info, I apply the cockroach theory: there's never just one. You see the SEC bring insider trading charges all the time. This is probably a fraction of what really goes on in the markets.

> if you follow these rules, you will mostly end up with reasonable market-rate returns.

which is good enough. You do not need to have outsized returns.

Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!

Yes, there are. I won't say it's easy, but it's possible to outperform the market without relying on the element of luck over a long term. Often, you don't hear about these folks because they are succeeding at a much smaller scale.

The reason is simple. The market, even rational as it is, gives you chances to make a great deal of money. META was $89 only a few months back. APPL was once trading at P/E of 10. TSLA is now 2.5x from its recent bottom. Of course, the boat has sailed now. Now, you can say investors who made money here were just lucky, or you can see how they ignored the temporary negative sentiment and invested in a company with solid fundamentals.

It's a myth that you can't beat the market. If you know how to seize an opportunity, you perfectly can. My investment philosophy is to keep investing in ETFs, but also keep an eye on bargains.

Berkshire Hathaway do actually own 16% of MSFT, about $400 billion if my maths is right.

> There must be many such investors. Are they all "better" than Munger and Buffett?

Your reasoning demonstrates that "better" is, strictly speaking, relative to a given set of criteria,[1] that are at least vaguely quantifiable and can be meaningfully (numerically?) combined[2] with each other.

I think that all these discussions who is "better" or "best" (strictly speaking or not) have their merrits. But not in the sense that we ever may arrive at a final, definite ranking. It is more of a recommendation to analyse a certain person's performance because something important might be learned from it.

[1] If we were to consider lottery tickets as "investments", the person who spent $1 and won $997,600,000 in the Powerball lottery in 2022[1.1] would be among the best investors of all time.

[1.1] https://en.wikipedia.org/wiki/Lottery_jackpot_records

[2] Does it make sense to ask whether Michael Jordan is a "better" sportsperson than Magnus Carlsen?

> Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett?

Using overall return as the sole comparison metric isn't really done when comparing managers. You can look at factors such as diversification, Sharpe and Sortino ratios, drawdowns...

And then out of the thousands of traits present in these investors, the 5 that this selected group happen to share, and seems quite logical, at times seem insightful, will end up in a blog.

Looks like it was under temperament:

"Some people are able to remain rational and continue to follow their process even under great duress or during periods of external upheaval. Others get swept up in the emotion that typically runs amok during such circumstances, and abandon their discipline."

On that note, what’s the easiest way to build a personal trading bot? Something in a simple language, that I can still nacktest perhaps stock and options.

> If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway.

and take the risk that you just overlooked something the rest of the market has priced in. But i guess to invest, one must have conviction that they're right about their investment thesis.

All I know in relation to this is that some Parkinson's medications can increase the desire to gamble with high risk, which I guess is a negative temperament for an investor.

Value investors pretty much do not use risk control as known from shorter term trading. They just buy low and sell when facts change (down) or prices change (up).

You are right that position sizing is important but for the opposite reason. Knowing your winners and then full on concentrating in them is statistically a big part of what makes successful winners.

> having the discipline to sell

I read about a study in Scientific American many years ago regarding this topic, and IIRC the results of the study showed that accepting a loss and reinvesting was what separated the good ones from the others.

The argument as I recall it was that stocks that fell hard seldom recovered, at least on shorter timescales, thus it was almost always better to accept that loss and reinvest whatever is left in something else.

> f you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.

aka, greed.

Yeah I think the Renaissance fund.