1 Quality You Must Have To Be a Great Investor

When the Asian Financial Crisis of 1997-99 slammed home, Singapore suffered. Not as badly as some of its Asian neighbours like Malaysia, Indonesia, or Thailand, but suffer it did.

Our nation’s gross domestic product (GDP) fell from US$99.3 billion in 1997 to US$85 billion in 1998, and then slipped yet again to US$84.9 billion in 1999. Our share market, as represented by the Straits Times Index (SGX: ^STI), fell from a January 1996 high of 2,450 points to a low of 856 points in August 1998; that’s a horrendous 65% bloodbath.

Yet, an investor who bought the index at its lowest point during the Asian Financial Crisis would now be sitting on more than 280% worth of gains. Question is though, how could the investor, at that point in time, know that the future would look brighter than the past?

He or she might have pointed to different kinds of valuation metrics or fundamental economic factors and say, “Look, Singapore will get better.” But, what made him sure that Singapore could recover and eventually prosper with a GDP of S$277 billion in 2013 and a Straits Times Index that’s currently sitting near 3,280 points. Perhaps, all there is to it is faith – faith that tomorrow will be a better day.

In the revised edition of Benjamin Graham’s classic investing text, “The Intelligent Investor”, there are commentaries at the end of each chapter written by renowned financial journalist Jason Zweig. The book’s postscript commentary (page 535, for investing book-worms!) had Zweig writing this:

And today’s headlines are full of fearful facts and unresolved risks: the death of the 1990s bull market, sluggish economic growth, corporate fraud, the spectres of terrorism and war. “Investors don’t like uncertainty,” a market strategist is intoning right now on financial TV or in today’s newspaper. But investors have never liked uncertainty – and yet it is the most fundamental and enduring condition of the investing world…

…It always has been, and it always will be. At heart, “uncertainty” and “investing” are synonyms. In the real world, no one has ever been given the ability to see that any particular time is the best time to buy stocks. Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.”

Being a keen student of investing, I too noticed a common trait amongst some of the best investors in the world: they are optimists – i.e., they have a genuine (albeit rational) belief in “a better tomorrow.”

Consider this about Sir John Templeton, who produced compounded annualised returns of 15% for 45 years. He was once described by Richard Evans of The Telegraph as such:

Sir John Templeton’s greatest weapon as an investor was his optimism – especially when most other investors felt otherwise.”

How about Warren Buffett, an investor who needs no real introduction? He wrote the following in his 2012 Berkshire Hathaway annual shareholder letter:

A thought for my fellow CEOS: Of course, the immediate future is uncertain; American has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful)…

…American Businesses will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favour. (The Dow Jones Industrials [an American market index] advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialised despite four costly wars, a Great Depression and many recessions. And don’t forget that shareholders received substantial dividends through the century as well.)”

Peter Lynch? He’s an investor who grew the Fidelity Magellan fund in the USA by a compounded rate of 29% per year between 1977 and 1990. The following is a short profile of him that appeared in a March 2009 edition of The New York Times. And just for some perspective, that was the month when the American stock market was at its pits following the Great Financial Crisis of 2007-09:

“Peter Lynch, Fidelity’s legendary stock-picker, declares himself to be as bullish as ever — but he adds that this is a congenital attitude, not an assessment of the current market.

“I’m always bullish,” Mr. Lynch said. A hard-core Boston Red Sox fan, he said his heart would have broken years ago if he’d ever allowed himself to turn negative: “Three months ago, 12 months ago, 10 years ago, 25 years ago, I’d have said the same thing.”

The fortitude of even the most devoted investors has been sorely tested by the stock market decline, which already ranks among the worst in modern history. “People say they’re afraid of a stock market crash,” said Mr. Lynch, the former manager of Fidelity’s Magellan fund. “Well, we’ve already had a crash. Look at the numbers.””

From all the above, it’s hard to not notice a strong optimistic bent in the world’s best investors. And I’m willing to go out on a limb and concur with Zweig: Optimism is a required ingredient for any investor to invest well.

I won’t profess to have any easy cure for those who are naturally disposed to seeing a glass as being half-empty all the time (I’m naturally optimistic!). But, maybe this article titled “Why I’m an Optimistby my American colleague Morgan Housel might help.

And just like in Morgan’s article, let me end here with a quote from financial advisor Josh Brown:

Count the perma bears on the Forbes 400 list or the amount of pessimists who run companies in the Fortune 500. You will find none.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Berkshire Hathaway.