So much of the focus in investing media and discussion centres on what can be done in the short term: finding the next big winner, the newest trend, the latest current event impacting today’s stock prices. Little of the minutiae presented will actually help you invest better – the overload of fast information with a short shelf-life can so easily leave our minds scattered.
In the effort to become a better investor, it is natural and intuitive to search for more information, what more to do or what more can be added. It may be surprising to many, but the best predictors of financial success over a lifetime are often consistent simple behaviours (i.e. your long-term habits), rather than stratospheric stock picks. The problem is that many people know the fundamentals of what to do, and yet still don’t succeed.
In fact, financial success is one of the few, if not only, fields where a nonchalant everyday person can outperform a high-flying professional simply by out-behaving them. You’ve heard the story before: an 80-something year old janitor leaves behind a multi-million dollar fortune nobody knew about while a Wall St “pro” has to sell his yacht and declare bankruptcy.
The fortune was created by a consistent, simple investing approach underpinned by a few straightforward character traits that allowed compounding to work its magic over a long period of time. The outcome of harnessing the power of compounding for a long time is profound, even with average returns.
As most readers would find a “what to do” list redundant, let’s try a different approach based on one of my favourite Charlie Munger-isms:
Instead of looking for how to succeed, make a list of how to fail instead. Charlie Munger is widely recognised as an incredibly intelligent polymath and he freely admits his studies of historical figures is to help reduce what he calls standard stupidities. Munger finds success through avoiding errors and subtracting distractions that could interfere with his mental clarity.
Thousands of years before Munger, the Taoist philosopher Lao-Tsu wrote that the path to wisdom involves “subtracting” all unnecessary activities:
Here is a quick list of seven financial behaviours to avoid. Doing so should greatly improve your prospects for success over the long run:
- Spending more than you earn, overextending and taking on too much debt
- Not investing at all
- Constantly checking the market and your portfolio
- Following headlines, advice from media and tips from friends
- Constantly turning over your investments
- Concentration into too few investments or di-worse-sification into too many
- Letting your emotions rule
At the heart of every difficult challenge lies three tough choices:
- What to pursue versus what to ignore;
- What to leave in versus what to leave out; and
- What to do versus what not to do.
Most people make the mistake of adding too much complexity to their investing, preoccupying themselves with the superficial and irrelevant. Focussing on the second half of each choice — what to ignore, what to leave out, what not to do — helps confront the things that could go wrong with your investments so you can lessen the chances of them happening to you.
Many of the greatest investors recognise the need to craft an environment that enables deep concentration and amplifies high performance habits. From Warren Buffett to Chuck Akre to Nick Sleep, each one has championed subtraction in order to deeply focus on what matters most to their investing practice. Buffett purposely lives and works in sleepy Omaha, away from the chaos of Wall Street. His office door remains closed and blinds shut so he can peacefully sort through annual reports without distraction. Akre, who’s firm Akre Capital Management beat the market for three decades, is based in a town with one traffic light and views of mountains. Sleep prefers a deep armchair to a desk and stores his Bloomberg Terminal (the pinnacle of fast information, stock prices and alerts) on a low table in a corner of a room separate to his office, making it uncomfortable to be there for long.
As the best investors show, it is not addition but subtraction that is key to sustained excellence.