Find Your Inner Warren Buffett

“If you always do what you’ve always done, you’ll always get what you’ve always got.”
Some say Mark Twain came up with this piece of pithy advice; others cite Henry Ford. No matter: what’s important is that it contains a lesson for all of us with an interest in investing.
Which is this: each of us has an individual investing style. And that individual investing style predisposes each of us for success — or failure.
So analysing your own investing style provides crucial clues as to what behaviours to repeat, and what to avoid.

Different strokes

I look at some successful investors, and see behaviours and approaches that seem a million miles away from my own investing style.

Are these investors wrong? No, of course not, if they’re generating returns, and those returns are consistent with their investment objectives.
So am I wrong, then? No, again, and for the same reason.
What matters is that each of us has figured out a style that works for us, and which suits our own personalities, preferences and risk profiles.

Find the edge

So a little time spent analysing your investing style can be both instructive, and profitable.
Instructive, because it provides insight into where you’ve done well, and where you’ve not done so well.
Profitable, because you’ll then be better positioned to do more of those things that have gone well, and fewer of those things that have not gone so well.
You’ll also be a lot closer to figuring out your own investing ‘core competence’ — the ‘edge’, in short, that underpins your own investing style.
Because — armed with that insight — you’ll then find it an awful lot easier to identify and pursue investment opportunities that suit your style. And also an awful lot easier to identify and filter out investment opportunities that don’t suit your investment style.

Which hopefully means that you won’t then waste time — or money — pursuing them.

Blood on the streets

Let me give you an example.
If you’re reading this, you’ll of course be well aware of Warren Buffett, who’s arguably the world’s greatest investor. And the odds are also good that when asked to name Buffett’s most well-known piece of investing advice, you’ll come up with that very familiar line about being greedy when others are fearful.
Nor is Buffett alone in suggesting this. Legendary investor Sir John Templeton spoke of ‘buying at the time of maximum pessimism’, for example. Still others have spoken of ‘buying when there’s blood on the streets’.
All of which, as investment advice goes, is completely useless if it doesn’t suit your investment style.
Because, simply put, it’s one thing to say ‘be greedy when others are fearful’, but a helluva lot more difficult to actually do it.
So if you didn’t mortgage your granny and load up with stocks back in February 2009, then you’re probably not constituently-suited to being a sort of fundmental value investor along the lines of — say — Warren Buffett, Howard Marks and Seth Klarman.

Tick the box

So what sorts of investing styles are there? Here are a few thoughts to get you started.

  • The small-cap value investor, looking to uncover undervalued nuggets among smaller companies.
  • The income investor, seeking companies offering decent and sustainable dividends.
  • The ‘long term buy and hold’ mega-cap investor, patiently building capital growth by buying the FTSE’s biggest businesses.
  • The speculator, moving in and out of companies when short-term ‘special situations’ and mispricing opportunities emerge.
  • The ‘shorter’, placing bets on companies that look set for a fall.
  • The analytical investor, patiently reading sets of financial accounts, because that is his or her individual ‘edge’.

And so on, and so on.

Style counsel

Put like that, it’s perhaps easier to see what I’m driving at.
Would an income investor make for a good small-cap value investor, or a good speculator? I don’t think so — however much they might like the idea, or fool themselves into thinking that they’d be good at it.
My guess is that they might get lucky occasionally, but most of the time they’d be less successful than with their core income investing strategy.
So let’s close by re-visiting that quote which I opened with.

“If you always do what you’ve always done, you’ll always get what you’ve always got.”
In other words, stick to what works for you, and you’ll carry on being successful.
“If you always do what you’ve always done, you’ll always get what you’ve always got.”
And if you carry on venturing into investments which don’t suit your style, then you’ll carry on not being successful with them.
Not difficult, is it?

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