What separates good investors from average or even bad ones? There are probably many answers to this question but almost all fall into two broad sets. One is about technique and knowledge, and the other is temperament and instinct. Obviously, the whole cultural thrust of the modern investment industry in its many forms is towards the first. Ask any investment manager or analyst and you will get a whole lot of talk about research and data and methodology and cool-headed analysis based on all this.
And no doubt it's all true. But is it the whole truth? Some time ago, I came across an article about a book named 'How Children Succeed: Grit, Curiosity, and the Hidden Power of Character', by a writer named Paul Tough. The book is about how what we call 'character' is probably more important than intelligence in determining whether a child succeeds in life or not. It appears likely that qualities like persistence and the willingness to sustain effort in the face of adversity are a far bigger determinant of success than simply intelligence. Once you hear this idea, you'll immediately realise that it fits perfectly on almost every successful person you know.
But what does this imply for who is going to be a successful investor and who is not? Investing certainly requires information, data, technique and similar inputs. However, these are easily acquired. Why doesn't everyone succeed, then? The answer may lie in what this book says. There is another layer of qualities on top of all this, one which boils down to temperament. It's not technique vs temperament, but one combined with another which seems to bring success. It's interesting to note that professional investment managers, even very successful ones, sing praises of technique and process while those who invest for themselves say that temperament is more important. Which group is likely to be giving the more honest answer?