“God, grant me the serenity to accept the things I cannot change, the courage to change the things I can and the wisdom to know the difference.”
— Reinhold Neihbur
I’m a huge fan of the Oracle of Omaha, Warren Buffett.
He’s had a cumulative return of 20.1% between 1965 and 2021.
When he started his fund in the 60s, he had returns over 50% per year. Incredible!
In the 70s, he returned over 30% during the entire decade.
He also has a secret to his success that you probably haven’t heard of.
It made him a successful investor and it can make you one, too!
I’m gonna go over it all in three easy steps.
Let’s jump into it!
1. Temperament is the Most Important Investor Quality
When you think of Warren Buffett, what do you think?
Do you think of a superhero?
Sometimes when I think about him, it feels like I’m thinking of a half-man, half-God
It’s an unfair advantage if somebody has a natural disposition to do all this stuff, right?
Step back for a second and see yourself in the same way Buffett sees himself.
He says the single most important thing in investing is temperament.
Temperament is a person’s nature, especially as it permanently affects their behavior.
So if you lose your crap every time something bad happens, you probably won’t be a very good investor.
A lot of people buy high and sell low because they panic.
I was an investment advisor and a lot of that job is managing people’s emotions.
They freak out.
They’re looking for somebody to hold their hand.
The masses need to have somebody help them not sell at the bottom.
You need a temperament that doesn’t derive pleasure from being with or against the crowd.
Buffett is saying you don’t have to be the smartest person in the room.
He says you have to manage yourself and be patient.
His partner, Charlie Munger, says the big money is not in buying and selling, but in waiting.
It’s not how many transactions you can do.
It’s not taking advantage of everything right now.
The big money is actually in the waiting.
I recently met the legendary investor Jim Rogers and he also said this.
I’ve heard George Gammon talk about how this is his investment philosophy he learned from Jim:
He sits at his desk and waits.
When he sees a pile of money across the room, he goes over and picks it up.
He then sits back at his desk and waits some more.
All of these super successful investors have said success is in the waiting.
You make money when you’re patient.
That’s not an easy thing!
When the stock market crashes, there’s the term blood in the streets.
When you hear blood in the streets, that’s a good time to consider investing.
Or if things are crashing, is it a sign to buy?
Let’s talk about some encouraging things.
Maybe you lose your cool like me.
I don’t always feel like I have the best temperament.
I can get impatient super easily.
So let’s get into some of the ways that can help!
2. Can You Change Your Temperament?
Warren Buffett is like the Iceman.
He can be so calm when things are crashing.
But we all have triggers, right?
We all have things that push our buttons.
How do you actually manage that?
What does that look like?
Carol Dweck wrote this great book called Mindset.
She said there’s two types of people.
One type is the people who feel like it’s a defining moment when something bad happens.
They think if they fail in something, that means they’re a failure.
But the more they learn, the more they see that success is not something people are born with.
It’s something they’ve spent tens of thousands of hours cultivating.
It’s the idea of having a growth mindset.
You have to ask yourself what you can do to manage your temperament.
How can you have a strategy when the market crashes again?
One method to help with this is called self-soothing.
It sounds really simple and also a bit like a therapy session – and it kinda is!
This is investor psychology.
It’s a very practical tool you can use when things are not going your way.
You can tell yourself that it will be alright.
Maybe your stock went from $100 to $50, but does the deal make sense to buy more?
That’s the stuff that great investors do.
They don’t say that they got into a panic and were wrong.
They’ll say that maybe they’re still right.
If the investment fundamentals are still there, maybe it makes sense to buy more.
That’s how people make a lot of money.
They’re able to manage their own temperament.
They’re able to manage their own psychology.
I encourage you to try that and see how well it works for you!
The other thing I’ll say is that when something bad happens when investing, the tendency is to call a friend.
You either call a friend or just to get negative in your own head.
Well, who are you calling?
Are you calling Chicken Little who will tell you that the sky is falling?
Or are you calling someone more like Serene Susie who will be a grounding force?
A lot of our investing success really comes down to who we surround ourselves with.
Jim Rohn says that you’re the average of the five people you spend the most time with.
Think about who will support you in those moments of need.
Speaking of surrounding yourself with the right people…
3. Study the Great Investors
The last thing I wanted to say on this topic is study the great investors.
I’m a fan of Warren Buffettt, Charlie Munger, and Jim Rogers.
There are a lot of great investors out there who have been exactly where you’re at.
When you don’t know what to do, think about what these people have done or what they would do in that situation.
It may allow you to tap into some of their strengths.
In Think and Grow Rich, Napoleon Hill said he would sit and have his cabinet of historical heroes.
He’d picture George Washington and all these other great leaders in a room in his mind.
He would draw strength in his mental board of directors.
There’s a great book about Warren Buffettt called The Snowball: Warren Buffett and the Business of Life.
Surround yourself with great minds.
My goal for 2022 is to read 60 books.
I encourage you to stay the course, follow your investment thesis, and learn.
The number one thing Warren Buffettt says is to manage and grow your temperament.
Most people lose money on their investments because they can’t manage their own temperaments.
Look at great investors and learn from them.
And if you want to hear more about Warren Buffett, check out our video on his investment tips for real estate investors.
Now I want to hear from you!
What are some things that you’ve noticed about Warren Buffett’s temperament?
What about your own temperament?
Stick your answers in the comments!
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.