“The most important quality for an investor is temperament, not intellect” Warren Buffett one said.
What does the quote actually mean? Read on.
The stock market is one place where intellect is not as important as it’s made out to be. You do not need to be extremely intelligent or highly educated to become a successful investor.
In fact, those who are intellectually average but have a strong temperament are likely to be much more successful at investing.
Like in cricket, you can be the most talented batsman in the world, but in a big match – when the chase gets difficult and pressure mounts, most players fail not because they cannot play well – but because they cannot handle the pressure. That’s probably one area where Virat Kohli edges out Sachin Tendulkar. Kohli has a strong temperament, can handle pressure situations well and hence has won India so many matches chasing.
Likewise in stock market investing – regret, overconfidence, greed, fear, lack of patience and other personal traits – can stop you from becoming as successful as you are capable of becoming.
A few common human behavioural issues that can affect investing:
- Many investors find it difficult to buy more shares, after the share price has gone up. But when price rises further, they regret the missed opportunity.
- Investors also tend to go with the crowd – investing money in stocks that everyone is buying, thinking the recent trend will continue into the future.
- A bear market can also prove to be unbearable for many, which is why most people sell when markets fall and buy when markets rise.
The right temperament takes time. Only experience, practice and patience can help new investors. But if you enter the market thinking you can become a successful investor just because you are good at Excel or are a Chartered Account who knows Fundamental Analysis – then the market will likely teach you lessons that you won’t easily forget.