What Differentiates Great Investors From Normal Investors?

This question has been on my mind the last few days, as Warren Buffett recently released his latest 2018 Letter to Shareholders.

What makes people like Buffett such great investors, and can this be learnt by other ordinary investors in order to make themselves even better investors?

Other great investors which come to mind include Benjamin Graham (known as the father of value investing), Peter Lynch, Walter Schloss, Howard Marks and Seth Klarman. Each of these investors has had a phenomenal track record of performance in investing in public stock markets. Here are a few factors I managed to tease out when comparing these gurus to ordinary retail investors.

Wide And Comprehensive Knowledge Base

One common thread among these great investors is that all of them read. A lot. Extensive reading would equip the investor with knowledge of various industries, as well as how companies and businesses are performing, the challenges they face and the strategies they undertake to manage these obstacles. The importance of reading was emphasized in an earlier article I wrote, and I know of no successful investors who do not read widely and deeply.

By equipping oneself with a strong base of knowledge, this enables the investor to perform sharper analyses of companies. It also allows for better prospecting of good investment ideas as the investor is exposed to a variety of industries and businesses.

Emotional And Risk Control

Great investors have good systems in place for risk control, and they also have a superb understanding of how to manage risks in their investments. By relying on their risk assessment system, they instinctively know how to size their positions properly, and also when to exit when the risk becomes significantly greater than the rewards.

Emotional control is also an important attribute of these great investors. They do not panic and sell in fear when something bad crops up, neither do they get greedy and excited for fear of missing out on something good. Buffett, for example, famously held back on buying over-priced technology stocks during the Internet bubble in 1999, even though he was publicly mocked for doing so.

Modest And Admits Mistakes

Staying humble and admitting one’s mistakes is another hallmark of great investors. Documenting your mistakes, accepting responsibility and learning from them allow us to grow and mature as investors.

The Foolish Bottom Line

The good news is that many of the attributes above can be adopted by ordinary investors over time. While it is obviously a very difficult task to be able to invest as well as these gurus, even small steps taken to improve oneself in the aspects mentioned above would result in a significant improvement in one’s investment results.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.