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Mark Sellers Article-


kyleholmes
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I agree with most of what Sellers is saying, with one caveat.  I think it IS possible for people to learn to re-wire their brain to think differently at any age given appropriate stimulus and exposure. Anyone that researches "Brain plasticity" and brain function recovery and adaptability in stroke victims will see that our brains have a great amount of untapped potential to re-map, learn new things, and new concepts at any age. It is obvious that merely reading a lot and going to business school will not give you the traits required to be a great investor. However, I do think it is possible to re-wire our brains to become better investors and capital allocators. it requires submitting yourself to certain stimuli over long periods of time -- and it does change the way your brain processes and responds to information. Thus far, we have not found a reliable way to train the average person to do this themselves.

 

Scientific understanding of the human brain is still fairly rudimentary--consider the following quote:

http://en.wikipedia.org/wiki/Neuroplasticity

During the 20th century, the consensus was that lower brain and neocortical areas were immutable in structure after childhood, meaning learning only happens by changing of connection strength, whereas areas related to memory formation, such as the hippocampus and dentate gyrus, where new neurons continue to be produced into adulthood, were highly plastic. This belief is being challenged by new findings, suggesting all areas of the brain are plastic even after childhood

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Here is an older piece done by Mark Sellers, that I thought other members might enjoy.... if you have not already seen it before elsewhere. Is quite relevant for what we have seen lately and why it is very difficult to be a 'true' value investor... got to be a little messed up!

 

http://www.manualofideas.com/files/sellers.pdf

 

Re: Sellers' piece, there is another/additional possibility.  You might not only be born with 'it' but 'it' might change over time.  That is, you might have to be lucky enough to have your innate investing style fit with the times you live in.  If not, returns may be less than optimal.

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At the risk of digressing from the main topic here, it appears that the odds of entrepreneurial success may

also be influenced by a mindset imparted by ethnicity.

The Millionaire Next Door; by Stanley & Danko (1996), a study of millionaire households in the US, claims that

by wide margins from the average, households headed by Russians, Scots and Hungarians (in that order) are more likely to be

millionaires. The Russians, apparently are most likely to be small business entrepreneurs and owe their advantage

to being the best horse traders, possibly related to their experience in the black markets during the Soviet era.

The thrifty Scots play the best defense, looking after household cash flow by minimizing expenses, and sending their

offspring unsupported earliest into the economic fray. Hungarians, like the Russians, are inclined to be entrepreneurs.

Other smaller ethnic groups whose members display these characteristics are Israelis, Latvians and Australians.

 

Apparently the most successful people economically are self employed "horse traders", who live modestly with an eye

to minimizing liabilities.

 

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I also agree with much of what Mark Sellers stated in the speech, but not all of it. FWIW, here is my spin on what is needed to be an outstanding investor.

 

 

Humility – I’ve said it before, but it bears repeating. The vast majority of the postings on this board show a high level of humility, a trait shared by the masters. Consider the Buffetts, Watsa, Templetons and others…they ooze humility. Buffett’s folksy quip of “When you see Ajit Jain, bow deeply” is cute but speaks to Buffett’s freely admitting the expertise of others. I work for a small company which is owned by a VERY smart man who is a terrible investor. Why? Well, there are a few reasons but one of the biggest ones is that he has an undying need to be in control presuming that he can do better than others. This tendency results in his inability to let others, such as his company’s management (including myself) make many decisions. This tendency hurts his ability to invest as he is not able to run the company in which he invests. He automatically assumes that he can make better decisions whereas most of the board members here acknowledge the superiority of Buffett, Prem, Berkowitz, etc. Also, a by-product of humility is constant seeking of knowledge. Realizing one’s limitations compels one to constantly seek to know more…reading and studying…becoming a constant learning machine. Mark’s #3 point parallels this.

 

Analytical Ability – The most often thought of application of analysis is related to numerical analysis of financial statements, but analysis also relates to understanding of how business work, physics, human psychology, etc. I would argue that, while financial numerical analysis is important, that it pales to the ability to analyze facts and figures and separate them into what is important and unimportant. This is key in that for every investment out there, someone can give you 10 reasons to NOT make the investment. Where the successful value investor differs from the non-successful investor is that the former can separate the important from unimportant and assess the relative merits of an investment based on this analysis. Analytics encompass both point 4 and 6 of Mr. Sellers.

 

Emotional Control – Let’s be honest, taking a position and seeing it drop by 20-30-50% is disconcerting at best and scares the living hell out of you at worst. The question is whether or not that emotion causes one to act irrationally. It was instructive to read this board over the past 18 months as the markets have plummeted. Those who had moved into cash calmly deployed when the time was right (give or take a few months) and those who did not move into cash (yours truly) calmly held their undervalued positions and/or re-deployed into more undervalued positions. The key…nobody freaked out. 5 years from now, that emotional control will have shown to pay significant dividends. Emotional control is what really drives the first and final behaviors on Mr. Sellers’ list. 

 

Of course, it is worth noting that several board members predicted rain a few years back AND built an ark!

 

Confidence – This is the “table” which is supported by the three legs referenced above (Humility, Analytics and Emotional Control). If one has the first three, then more often than not there is a feeling of confidence. This confidence (not cockiness, but confidence) is key to maintaining the emotional control. See Selles’ point #5.

 

I do disagree with trait #2. While one certainly needs to be focused, there is not a need to be obsessed. Others’ opinions may differ, but obsession is focus taken to an unhealthy level.

 

Now, as this relates to Mr. Seller’s speech, I think he is right that there is a small subset of individuals who posess all of these traits. That is not to say that those who do not are not intelligent or will not be successful. It’s a matter of having the total package which applies to the art and science of investing. 

 

-Crip

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I would just add a very important trait to me:

 

Independance.

 

What does that mean? That mean to take your investment decisions with your own analysis and reasoning, not on what the public, the media, the Internet forums, etc. think. That does not mean to don't listen to these sources of very valuable information, but take them as sources of information that you must filter. Follow the crowd or being a contrarian for their own sake are neither good behaviors to me.

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