Why Leverage Beats Scale. Especially Now.
Every great investor I've encountered sees the world differently than most people find comfortable. That's not incidental to their success. It's the mechanism.
Introduction
One of the most common misconceptions about investing is that it’s easy. To hear some people tell it, all you have to do to be a great investor is throw some money into stocks, add leverage and just sit back as your life savings start to magically multiply.
That version of investing doesn't exist. It never did.
Too bad that’s not really how it works. If anything, picking stocks that will outperform the market is one of the hardest things an investor can do. You need to not only know what makes a good investment and what doesn’t; but you also have to anticipate future events that financial markets are ignoring.
Simply put, you have to be able to make great decisions today with imperfect and incomplete information about the future.
Spoiler alert: That’s very difficult to do over long periods of time. But it turns out that certain personality traits can make someone more likely to become a great investor. Unfortunately, these traits aren’t exactly ones that would make anyone rush to be friends with them.
“Weirdos Are Heroes”
Everyone knows someone who is a little weird. They might be awkward in social situations, have strange interests or come up with odd ideas.
There are all sorts of weird people all around us. Some we notice instantly — but most we don’t notice at all.
I know this because in my line of work, the very best people are all a little weird in their own unique ways.
In fact, I believe it’s actually a critical personality trait if you want to be a great investor. Or as the principal of a major European family office once told me: “In investing, weirdos are heroes.”
We all understand that we have different strengths and weaknesses, so we are not all going to be good at the same things. Our personalities will have an effect on how we make decisions, which in the case of investing, will affect success.
It Pays To Be Able To See Things Differently
If you’re someone who fears being called weird or a weirdo, you’re not alone. Still, having a weird personality isn’t just for artists and creative types. It’s also an asset if you’re an investor trying to spot attractive investment opportunities before everyone else does. That is, if you’re able to see things differently, you are more likely to see opportunities others miss.
Great investors tend to have a unique perspective on the world and see things from a different angle than others, which is something that is impossible to replicate.
When you have a perspective that differs from that of the majority, you get to see things others can’t see. This gives you a massive, unfair competitive edge over other investors because your views are less likely to be priced in.
Moreover, seeing things differently also means not being afraid of swimming against the stream.
To Be a Great Investor You Have To Be Able To Refuse To Follow The Crowd
In my 25 years in the investment industry, every great investor I’ve met is hyper aware that they see things differently than the average person and they’re not afraid to be different or to be wrong. They know that it’s okay to have an unpopular opinion, and they aren’t afraid of people thinking their ideas are crazy or dumb.
“You can’t look around for people to agree with you,” Warren Buffett said of making investment decisions. “You can’t look around for people to even know what you’re talking about.”
Great investors therefore focus on making decisions that are different from what other investors are doing — and in many cases this starts with refusing to follow the crowd by looking at investments from a completely different perspective than everyone else does.
Great Investors Are Relentless Seekers Of Information
We all have our own set of biases and perceptions, which can color the way we view opportunities. It’s vital to be aware of your own viewpoints and be on guard against confirmation bias, or the tendency to seek out information that supports your beliefs while ignoring contradictory data.
The key is to not let these biases cloud your judgement. It’s important to take a step back from your investment decisions and make sure you are making them for the right reasons and based on valid information.
The best investors seem to be relentless in their search for information. They are always looking for a way to improve their understanding of the world and emerging trends. The ability to see the value in something others don’t is what separates great investors from everyone else.
But there’s another reason why the best investors are relentless seekers of information: Because companies don’t usually tell us all there is to know about themselves (and in some rare cases, they even lie outright).
Successful Investing Starts With Accepting Who You Are
There aren’t any hard studies or statistics to back this up, but I can say it’s certainly been true in my career having crossed paths with a number of truly amazing investors.
When I look at them, they’re all different. Some are quiet and focused while others are loud and boisterous. Some like to talk about their investments while others keep them to themselves. But one thing that stands out is that all of them have weird personality traits that many would find off-putting because the traits that make for great investors are also traits that can make it tough to be a well-adjusted person.
Fortunately, you don’t need to be a whacky weirdo to make money in the stock market. But the first step in successful investing is to know who you are.
It’s important to be honest with yourself about your strengths and weaknesses. Once you’ve figured that out, the next step is doubling down on your strengths and going after it.
Don’t let anyone tell you that if your personality doesn’t match the typical investor mold that it’s a bad thing or means you can’t be successful. There are lots of different paths, so don’t sweat it if yours doesn’t conform neatly within someone else’s definition of “normal.”
The traits worth cultivating are harder to bullet point. Staying curious longer than is comfortable. Updating your position when the evidence changes. Being willing to look wrong in public for longer than most people can tolerate.
So, if you feel like you don’t fit in with everyone else then maybe it’s because you’re just not meant to.
Conclusion
The investors worth watching aren't the ones who project certainty. They're the ones who've made peace with being misunderstood long enough to be proven right. That gap, between the misunderstanding and the proof, is where the returns actually come from.
