The Rational Investor #038: Cultivating an Environment for Investing Success
Happy Saturday to you,
Welcome to the 38th edition of The Rational Investor Newsletter.
One topic that is rarely discussed when identifying factors that lead to investing success is the cultivation of an environment that increases your probability of success. This week, I’ve been reading The Education of a Value Investor by Guy Spier, and he shared quite a few thoughts on this unique topic. As a great admirer of Buffett, Spier focused primarily on Buffett’s practices, but then he shared how they have impacted his life and investing.
The quote I share below is actually a collection of quotes from four separate pages in the book, all pointing to this same important practice.
And I have a few thoughts to follow.
Onto the main event…
Here’s Guy Spier on Cultivating an Environment for Investing Success:
“It helps that Buffett has created a peaceful environment for himself in which he can operate calmly and rationally. By staying in Omaha, he has remained far from the madding crowd. His legendary personal assistant Debbie Bosanek (who has worked at Berkshire for more than three decades) also helps to shield him from unnecessary distractions. She once told Mohnish (Pabrai) and me that Warren usually keeps his cell phone switched off and doesn’t even have an email address. The fact that he has the right filters clearly helps him to guard against letting in the wrong type of information.
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Similarly, he (Buffett) chooses not to fill his days with distracting meetings. During our lunch, he showed us his appointment diary, which was mostly empty, and said he manages his schedule himself.
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As Buffett taught me, it’s not enough to rely on one’s intellect to filter out this noise: You need the right processes and environment to do so. For this reason, I decided to move to Zurich just six months after our lunch, knowing that it would be easier for me to remain clearheaded from there, far from the New York vortex.
Thankfully, this is one aspect of what Buffett does that other investors can replicate: we can clone the environment and processes he created to keep the noise at bay. For me, this has meant not only moving away from Wall Street, but blocking out other types of noise that would otherwise muddy my thinking. For example, I totally ignore market predictions and focus instead on investing in companies that should grow significantly over the long term.
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Following my move to Zurich, I focused tremendous energy on this task of creating the ideal environment in which to invest—one in which I’d be able to act slightly more rationally. The goal isn’t to be smarter. It’s to construct an environment in which my brain isn’t subjected to quite such an extreme barrage of distractions and disturbing forces that can exacerbate my irrationality.
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It’s better simply to construct my environment so that I’m not exposed to these destabilizing forces, which are likely to intensify my irrationality. The key is to free my mind from any unnecessary mental effort so I can use it for more constructive tasks that are likely to benefit me and my shareholders.”
The quick point I’d like to share in conclusion is that while cultivating a “physical” environment may not be as important for us as it is for professional investors, we should exercise great care in cultivating our “mental” environment.
Do you routinely consume sources that encourage good behavior (e.g., books and studying successful investors), or sources that encourage poor behavior (e.g., mainstream media, pundit forecasts, and doomer newsletters)?
I’d suggest that your answer to that question is quite predictive of the investing results you will experience.
The more long-term thinking you expose yourself to, the better you’ll do. The more short-term thinking you expose yourself to, the worse you will do. It really is as simple as that.
My recommendation is to be ruthless in your curation of information. Only the best should get through your filters.
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
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