I’ve read dozens of books on Warren Buffett over the years, so when I saw The Winning Investment Habits of Warren Buffett and George Soros on the shelf I wasn’t 100% sure whether I would read it.
The author is Australian writer and businessman Mark Tier and the blurb on the inside cover said that he has lived in Hong Kong for some years as “paying tax is against my religion”.
A little controversial and it made me chuckle so I thought I’d give it a go.
The basic premise is exactly as the title suggests, to identify the winning habits of two of the world’s most successful ever investors, and particularly to isolate the common ground between the two.
It’s an interesting idea, as the two investors have such strikingly different approaches.
Buffett is the archetypal value investor.
He goes long only and favours buying quality shares below intrinsic value and applying focus rather than wide diversification.
Soros in his Quantum Fund also applies great focus but instead is much more in the mould of an aggressive hedge fund investor and his most famous trade was a multi-billion dollar short position against the British pound which earned him the moniker “The Man who broke the Bank of England”.
The 23 winning habits
What average investors can learn from the habits of Soros and Buffett, says Tier:
- First priority, preserve your capital – don’t take unnecessary risks
- Be risk averse – erm, yes, see point 1
- Develop your own investment personality which is an expression of your personality (we are all different after all)
- Develop your own system for choosing investments – again what works for one of us won’t necessarily work for another
- Specialise don’t diversify – a caveat here, diversification does have great benefits for the average investors portfolio, what Tier is inferring, I believe, is that you should aim to become a specialist in one area of your investing
- Minimise your tax – definitely do this, take advantage of deductions and favourable tax laws – use a good accountant to do
- Only invest in what you understand – leave complex financial instruments to the professionals – keep it simple: stocks, index funds, investment
- Refuse investments that don’t meet your criteria – be able to say “no”
- Do your own research and continue to seek opportunities
- Be patient in finding your investments – don’t rush in to buying the first investment you see
- When you have made a decision, act instantly and go with it, be decisive
- Stick with a winning investment until a pre-determined exit point – in my opinion, the best investments are those which you can own forever
- Stick to your system religiously – don’t override your plan simply because you become jittery
- Admit mistakes and correct them – be aware of your own failings
- Treat mistakes as learning opportunities – we all make mistakes, so always keep learning…
- Use your experience to improve returns
- Don’t discuss your investments with others, be confident in yourself – discussing investments with others can destroy your confidence or introduce ‘ego’ into your strategy
- Delegate where appropriate – using a team of professionals can really speed your progress along
- Live well below your means – essential for Buffett; essential for all of us
- Invest for fulfillment not just for money – if you don’t enjoy the process, you will be unlikely to succeed
- Don’t become emotionally involved in an investment; be able to walk away if appropriate to do so
- Live and breathe your investing!
- Put your money where your mouth is
The last point is an important one
There is little value in being one of those people who has an opinion on everything under the sun and knows investment theory inside out and back to front. At some point you have to put your money where your mouth is.
Buffett believes in his approach and virtually his entire net worth is in the stock of Berkshire Hathaway.
So it is for Soros and his Quantum Fund.
Investors in each of the vehicles know that their interests are aligned with those of these super-investors because they put their money where their mouth is.
Tier believes we should learn from these habits: commit to knowing an investment market as well as you can…and then put your money where your mouth is!