| By
Gary Scott
A common denominator that shows
success guidelines of good investors is that they focus on fewer concepts and
less data rather than more.
Warren Buffett Success
Guidelines
For example Warren Buffett,
one of the world's great investors, says his core success guidelines are:
1. Do what you like.
2. Money isn't everything.
3. Work only with
people you like.
4. Buy businesses,
not stocks.
5. Invest only in
what you understand.
6. Don't over diversify.
7. Keep looking
for new opportunities.
8. Buy businesses
you plan to keep for life.
9. Look for businesses
that are available at a good price.
Picture and details on Warren
Buffett's book.
John Templeton Success
Guidelines
I recall watching an interview
between Buffett and John Templeton. They argued over whether to invest internationally
or not. Buffett said there is plenty of opportunity right here in the U.S. John
said there is even more opportunity if you choose the world. I pondered this
for many years and finally realized both were right. Each had their own unique
system of filtering the bad from the good each system worked.
Success Guidelines Shown
in Blink
Last message looked at how the
book “Blink” has focused on this ability to spot patterns and behavior
based on very narrow slices of experience and calls it Thin Slicing. This is what
great investors do.
Michael Keppler Success
Guidelines
Take for example global equity
analyst Michael Keppler. He rates equity markets based on value. His experience
in this field allows him to decide whether a market is a buy, sell or neutral
candidate based on just a very few factors, mainly p/e ratios, price to cash flow
and dividend yields relative to that market's history. There is a bit more to
Keppler's system, but not a lot.
Michael has spoken at a number
of our courses and it is fascinating to see him field questions, because he has
such absolute focus on value. If there are questions about politics, he'll
say something like, the market reflects the politics in its value. If asked
about the strength of the underlying currency, he'll say something like the market
reflects the currency position in its value. If asked about support and resistance
levels or current moving averages, he'll say something like, the market reflects
all these things in its value.
Value is his focus and this
allows him to make accurate decisions in the shortest time from a minimal amount
of fact. He is able to filter out the news, the weather, the politics, the
currency, the economies, the wars, the terrorism and all the noise that can confuse,
waste time and mislead.
Success Guidelines Results
The proof of the pudding is
in the eating. Since 1993 Keppler’s Major Market High Value Strategy
has risen 211.8% compared to a 137.1% rise in the bellweather Morgan Stanley Capital
Index. In addition his standard deviation (4.5%) is also lower than the MSCI
(4.8).
You can see more about Keppler
and his strategies.
More details on the success
guidelines of Keppler
Asset Management
When looking at your investment
decision system, instead of figuring out how to process more information, perhaps
it makes sense to look at ways to calculate with less!
Where do you start weeding data
out? Look first for things, knowledge and experience that you know and believe
in. This is the keeper information. Use the "as above so below"
theory to apply your core beliefs to a broad range of circumstances. Take
Buffet's "work only with people you like" suggestion as an example. If
you know you can't work with people you don't respect, you can weed out many potential
investments right away. If this is a maxim, in one short stroke you can eliminate
many deals without worrying about their profit potential, their honesty, their
economic and social good, their market position, their moving averages, their
cash flow and so forth.
Cut out data that you know little
of. You won't have much confidence in this aspect of your decision anyway so why
waste time considering it? Ignore details that are short term and that can
change at a moments notice.
When it comes to thinking it
appears that less really is more. Yet just keeping information out of the
system is not the only factor that increases our ability to make fast, accurate
decisions. If Blink is to be believed, a lot of our most accurate
thoughts takes place in ways we cannot even know.
The next
part of this series looks at an entirely different way to process information.
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