This is a summary of an interesting article written by Todd Wenning. During this year’s Berkshire Hathaway annual meeting, Warren Buffett discussed the importance of his eventual successor as CEO having ‘a money mind’: “People have to have a money mind. They can be very smart but make very unintelligent money decisions; their wiring works that way…A money mind will know what needs to be done.” So, what is a money mind and why should it matter to you? Wenning explains what a money mind should do:
1. Understand opportunity costs: Put simply, opportunity costs measure the gains you’ve forgone to make another choice. As investors, we face opportunity cost decisions all the time, whether we recognize them or not. Cash or shares? Bonds or property? Company XYZ or the Index investing? A money mind will acknowledge his or her objectives and time horizon, and balance those with current market opportunities.
2. Have high emotional intelligence: There are four critical aspects of emotional intelligence, according to Travis Bradberry and Jean Graves in their book Emotional Intelligence 2.0. These four aspects are: Self-awareness, self-management, social awareness, and relationship management. As investors of our money or someone else’s capital, we must be able to recognize our biases (self-awareness), be able to act at times against those biases (self-management), understand the emotions of other investors (social awareness), and balance our emotional state with theirs (relationship management). These requirements are a tall order, especially when we’re facing outside stresses in our personal lives.
3. Be able to think and act long-term Capital allocators such as fund managers frequently feel the pressure of monthly, quarterly, or yearly results. Portfolio turnover is much higher than it otherwise might be. For an investor to truly think and act long-term, they must have the personal capacity, the right clients, and the right investment vehicle to do so. We individual investors have a tremendous advantage in our ability to be patient, since we have no outside capital ready to flee following a year of market underperformance. Sadly, few investors fully capitalize on this valuable advantage. Money minds will seek out environments that will enable them to execute their objectives.
4. Judge investments on value and not on price: One of the bigger mistakes that investors make is buying things that look cheap based on price alone, without consideration to quality. A money mind will recognize the folly of being penny-wise and pound foolish.
Let us train and develop our money mind.
Invest in yourself
Are you interested in learning more about investing & trading? Join our community of 20,000+ learners who have benefited from our online courses. We would also recommend signing up for news and updates using the form below so you can be notified of any events or workshops we host in the near future.