Successful Investing: Process Elements and Personality Traits

“To be good investors or research analysts, we need the right genetic predisposition and then must create the right circumstances to practice and hone these skills,” writes Joachim Klement, CFA in a recent article for CFA Institute.

Klement prefaces his argument with a discussion about how, surprisingly, the influence of genetic traits increases over time, perhaps because our environment “reinforces genetically determined talent and hones this talent through deliberate practice”.

He segues the discussion into one around the generation of investment ideas and offers the following suggested “process elements:”

  • Once you have an idea, he writes, “use data and academic studies to verify or falsify it. Keep an open mind and reject the thesis if the data does not support it.”
  • Don’t rely on secondary sources like other research analysts or media reports, but rather focus on original sources and peer-reviewed academic studies.
  • Rather than staying within your own area of expertise, “venture into history, psychology, neuroscience, and other disciplines to inform your work.”

Klement concludes by pointing out that both patience and resilience are partially determined by our genetic makeup, and successful investing requires both. He cites the example of Warren Buffett, who started to invest very early in life, consistently trying to learn new things and reflect on past mistakes.