This week I am posting a guest blog by Dr. Daniel Crosby.
I’m convinced that one secret of Warren Buffett’s enduring popularity is his “everyman-ness.” While “The Oracle” is insanely wealthy, he is also grounded and approachable which makes replicating what he has done seem almost doable for regular schlubs like you or I. Buffett famously said of intelligence and investment success, ”You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” But is he right? Are billionaires really just ordinary folks or do their brains operate in a more rarified way?
Luckily for us, Jonathan Wai, a research scientist at Duke set out to answer this very question. Wai found that about 45 percent of billionaires were in the top one percent of cognitive ability, beating out Senators (41%), Fortune 500 CEOs (38.6 percent) and especially those dummies in the House of Representatives (21%). But despite the overall braininess of the ultra-wealthy, many other factors certainly play in, factors like work ethic, privilege, discipline and luck. So, assuming a big brain isn’t all it takes to make the Forbes 400, what are some of the behavioral attributes of the Warren Buffett’s of the world that make them so successful.
To name a few, they are:
A contrarian mind – Buffett is what is referred to as a “value investor”, one who buys stocks that others have discarded for not being sufficiently glamorous. While most of us run out of the market just as stocks are going on sale, two prominent billionaires, Buffett and Sir John Templeton made their fortunes taking a different tack. Buffett’s advice in this respect was to, “Be fearful when others are greedy and greedy when others are fearful” whereas Sir John counseled that, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” In both cases, their fortunes were made not necessarily by smarts, but by swimming upstream.
A patient mind – As a human race, we are prone to “present bias” or to use the psychobabble term, “hyperbolic discounting.” The present reality tends to win out over a desired future reality, since our future selves are experiences as being less real. Consider every diet you’ve ever been on (if you’re like me). You have an idealized vision of your future self, one with better abs and at least one fewer chin, but your present bias keeps getting in the way. That future self lives somewhere in the ether, but those cookies?! Those sweet, buttery cookies? They are here right now. This sort of impatience leads us to make easy decisions now that don’t serve the wealth building efforts of our future self. Billionaire hedge fund manager Ray Dalio and media mogul Oprah Winfrey both practice meditation as a means of fine-tuning the wealth building competence of patience.
A simple mind – Excuse me? A simple mind? Before you accuse me of calling the 1% of the 1% simple-minded, let me elaborate. Consider some of the highest profile billionaires around and how they made their fortunes. Mark Zuckerberg got rich helping us connect more effortlessly. Steve Jobs made his billions by streamlining the personal computing experience. Sam Walton spawned a family fortune by putting everything you need under one roof at a low price. I have no doubt that each of these individuals are bright or that there is true genius in making the complex seem simple. But in each case, the brilliance of their discovery was how commonplace it looked after the fact. With 20/20 hindsight we shake our heads and ask, “Why didn’t I think of that?” Rather than complicating something for its own sake, or out of some sense of intellectual showmanship, these three made it big by making it easy.
It may be the case that you have the kind of intellect that can propel you to fortune and fame. But if not, perhaps being a plodding, simple-minded contrarian will do the trick just as nicely.
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Educated at Brigham Young and Emory Universities, Dr. Daniel Crosby is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. His clients include Brinker Capital, Morgan Stanley, RS Funds, Guardian Life Insurance and NASA. Dr. Crosby’s well-reviewed book, “You’re Not That Great” applies elements of behavioral finance such as loss aversion and availability heuristic to the pursuit of a meaningful life. You can follow Dr. Crosby (@incblot) on Twitter.