Warren Buffett loves playing bridge. I dabble in a little poker from time to time. And as much as I’d like to delude myself into thinking I have more similarities with the “oracle”, it ends with a penchant for playing cards. But that doesn’t stop me from learning more about how Buffett thinks investors should approach the game. After reading this installment in our ongoing Investorial series on Buffett’s tenets, if you don’t feel you fit all of Warren’s requirements for being an investor, don’t worry! There’s always a table game going on somewhere!

What Is An Investor?
According to Buffett, investors always invest for the long term. Buffett’s advise for thinking long-term is for investors to adopt the mentality of “buy a business, don’t rent stocks“. The mindset is needed in order for you to incorporate the utmost care and discipline into your stock selection process. “An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”

What if your friend asked you to invest a large sum in his restaurant? How much research would you conduct prior? How much attention would you pay after? We can argue about the semantics between investors and traders till the cows come home. But Buffett’s definition requires not just a vesting interest but a regard that goes beyond the mere monetary benefits. How many mutual fund owners know intimately about how their money is put to work? Or is it a mere black box that promises to give you more money than you put in?

The Investor’s EQ
Consider the following famous Buffett quotes. Do you see a common thread?

1. “It is optimism that is the enemy of the rational buyer.”
2. “The ability to say ‘no’ is a tremendous advantage for an investor.”
3. “It is more important to say ‘no’ to an opportunity, than to say ‘yes’.”
4. “Be fearful when others are greedy and greedy only when others are fearful.”
5. “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

Of all the qualities of being a successful investor, Warren Buffett has consistently identified temperment as the “must-have” quality. He often preaches that investors need “a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

As you can tell, Buffett does not trust the crowd. He feels that too often Investors step up to bat thinking they have to swing at every pitch that looks good. Meanwhile, Mr. Market keeps throwing pitches over the plate but there’s no umpire to call strikes. You can stand at the plate for as long as you want. In the 1998 Berkshire Hathaway annual meeting, Buffett proudly proclaimed , “We don’t get paid for activity, just for being right.”

Things That Most “Investors” Don’t Want To See/Hear
Let’s face it, some investors are simply addicted to investing. How else do you explain the people who are glued to watching CNBC, Report on Business Television? Daytrading is part addiction for that “rush” and part obsession watching the charts for that next instant gratification. For those people, you may wish to avert your eyes before reading these Buffett quotes.

1. “It is not necessary to do extraordinary things to get extraordinary results.”
2. “Lethargy, bordering on sloth should remain the cornerstone of an investment style.”
3. “An investor needs to do very few things right as long as he or she avoids big mistakes.”
4. “An investor should act as though he had a lifetime decision card with just twenty punches on it.”
5. “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”

Finally, I leave you with my favourite Buffett quote about being an investor …

“Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

The reason that this quote is my favourite is because it tells me that everybody has fair chance of being as good as Buffett. We all start at 100%, but get ourselves into trouble by thinking emotionally rather than rationally. Too often, the rationales propogated by mainstream media can be utterly foolish. In fact, that’s what we’ll be convering in our last chapter of Buffett’s tenets, coming in the next few days!