What do you believe an investor's greatest asset is?
A high IQ?
A stack of degrees behind their name?
A workable investment strategy?
Not at all.
In fact, the answer has nothing to do with money or personal success.
But it's something every potential investor can achieve.
Let me explain…
The world’s most famous investor confirms this is an investor’s greatest asset
It’s always fascinating to read heroic stories about individuals who made fortunes as a result of exceptional insights or sheer genius.
But the reality is, all you need is a calm mind and strong stomach – Something Warren Buffett
calls “emotional stability”
At the Berkshire & Hathaway annual shareholder meeting in 2009, Warren Buffett said, “if you’re in the investment business and have an IQ of 150, sell 30 points to someone else.
What you need instead, is emotional stability and peace about your decisions.”
To prove how right Buffett is, here are…
Two famous examples of how emotional stability paid off…
Example#1: The “bargain hunter”
In 1939, World War II broke out. The world was on edge and the markets were in a frenzy.
But one of the greatest investors of all time, Sir John Templeton
made a legendary investment move. He borrowed $10,000 to buy 100 shares in 104 companies selling at $1 per share or less.
Just four years later he sold this portfolio for $40,000 – A small fortune back then. That’s around a 40% yearly return over four years.
Now did John Templeton panic in 1939 and not invest in anything? No he didn’t.
He had the emotional stability coupled with a strong investment strategy which helped him make money through World War II.
#2: The “father” of value investing
1929 to 193 was the deepest and longest-lasting economic downturn in the history of the Western world. This was a period of rampant speculation which led to a market crash of epic proportions - known as The Great Depression.
In just three days, the Dow Jones sank from 400 points to 145 points wiping over $5 billion worth of market cap.
During this volatile period, one of the greatest investment legends, Benjamin Graham
saw his company's holdings lose 70% of its value.
Did Benjamin Graham panic and stop all investing?
No. From his experience, Benjamin Graham developed a new investment strategy to find undervalued investments – which guided his firm to a 20% return, every year for the next 20 years.
Emotional stability is key to investment success
In short, the best rewards don’t generally accrue to investors with the biggest brains.
Many people lose confidence and panic because they simply don’t know what they’re doing.
It’s your money that’s on the line, so you should understand the basic fundamentals of investing.
Also expect the unexpected. Look back at the history of the market. Waiting behind every bull market is a bear market. And behind every bear market is yet another bull market.
That’s just the nature of things. So don’t be surprised when it happens.
What you can do to build emotional stability is take a long term view of the market.
For instance, if you’re investing for 2020, it’s not really important what the market does this week, this month or even this year.
Lastly, you need to understand that we’re hardwired to react emotionally. That’s a part of life. But a fear response in the financial markets isn’t helpful and could lose you money.
Until next time,
Always remember, knowledge brings you wealth,
If you’d like to discover all the proven investment strategies from the world’s greatest investors that have made millions, even billions dollar fortunes, check out Real Wealth. SaveSave