Chapter 31 of The Winning Investment Habits of Warren Buffett & George Soros:
It’s Easier Than You Think
“What we do is not beyond anybody else’s competence. It is just not necessary to do extraordinary things to get extraordinary results.” — Warren Buffett
When I mentioned to one woman that I was writing this book she asked me how many Winning Investment Habits there were. When I told her, she exclaimed, “Twenty-three! Why so many? Can’t you make it three?”
I’m afraid not, which may make adopting all the habits seem like a daunting proposition. The good news is that just by adopting a few of them you will immediately see an improvement in your investment results.
That’s what I did. I adopted a kind of cross between Benjamin Graham’s and Warren Buffett’s systems, buying Hong Kong-listed stocks in well-managed companies with low P/Es and high yields. One of these companies turned out to be more poorly managed than I could have ever imagined. It was eventually delisted and I suffered a total loss. But I didn’t take it personally. I learnt from the error and moved on.
When everyone else was getting rich in dot-com stocks, I wasn’t tempted. I stuck to my system. Nevertheless, I had one bonus from the internet boom. I bought shares in a company that rented the exhibition booths at trade shows and the like. One day I noticed that the stock had doubled since I’d last checked the price a week or so before. Unfortunately, I also noticed that a couple of days before it had been even higher.
I did some digging and quickly discovered the stock had soared because the company was having discussions — just talking! — with an American outfit about somehow putting its business onto the internet. So I immediately called my broker and told her to dump the stock. It was obvious to me this was like winning the lottery, a windfall gain. Sure enough, a few months later the stock had fallen to less than I’d originally paid for it.
But I can’t claim that I have always acted instantly like I did then. Far from it.
I’d owned a stock for a while because it had a 25% dividend yield (that is not a typographical error). But the company’s business fell off as the economy soured and it cut its dividend. This happened while my mental focus was on finishing this book, so I procrastinated for quite some time before selling the stock for far less than I’d have gotten if I’d acted immediately.
Despite my far-from-perfect record in practicing the 23 Winning Investment Habits, I still banked an average 24.4% annual return on my Hong Kong stock portfolio for the five years from 1998 to 2002.
But improving your performance isn’t the only benefit you can expect from adopting the Winning Investment Habits. You’ll also be far more relaxed when making investment decisions. You may even find the process of investing now contributes to your peace of mind rather than being a source of anxiety. You’ll no longer view the successes of others with a sense of envy, bewilderment or self-doubt. Rather, you’ll probably react by thinking something like, “Well, that’s an interesting way of investing…but it’s not for me.” You’ll no longer be on an emotional roller coaster governed by the manic-depressive changes in Mr. Market’s mood.
Indeed, having purged from your mind any belief you may have once had in the Seven Deadly Investment Sins, you’ll suddenly realize that 90% of what you read in the financial press and hear from talking heads on financial TV programs is totally irrelevant.
The financial media is dominated by the belief that the only way to make money is to predict the market’s next move — the first Deadly Investment Sin. Having purged those beliefs from your mind, you may find yourself wondering whether you really need to continue reading the Wall Street Journal every day. Or maybe you’ll find it a regular source of amusement, as I do — and wonder why you ever wasted your time watching those financial TV channels.
By adopting these habits you’ll develop your own way of looking at the markets, and of doing things, that will separate you once and for all from the investment herd.
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