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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Smartest investors are born, not trained

HERE’S SOME sober-ing advice for peo- ple who aspire to be the world’s next great investor: You have almost no chance.

That’s what hedge fund manager Mark Sellers told Harvard University business students at a speech in Boston. The text was posted on the financial Web site

Sellers told the students they were the “brightest of the bright” but had just a microscopic chance of becoming the rare investor who can achieve compounded annual returns of 20 percent or better for long periods.

“You all have a lot of advantages over Joe Investor, and yet you have almost no chance of standing out from the crowd over a long period of time,” Sellers told the students.

Sellers’ main thesis was that great investors are born, not made. The ability is either hard-wired into you or it isn’t. It can’t be achieved through years of experience or by reading every book about investing, although that can only help. Every other wannabe Warren Buffett is doing that also.

“By the time your brain is developed,” Sellers said, “you either have the ability to run circles around other investors or you don’t. Going to Harvard won’t change that.”

Sellers told the students that if they study hard and are smart they can probably learn to be slightly above average and have a successful career. But he said the key to being a great investor has more to do with psychological makeup than intellect.

Sellers mentioned the following seven factors as being traits shared by great investors:

The ability to buy stocks while others are panicking and sell stocks while others are euphoric.

An obsessive focus on the stock market and an intense desire to outperform.

Being willing to learn from past mistakes so they can avoid repeating them.

An inherent sense of risk through common sense.

Sticking with their convictions even when roundly criticized by the crowd.

Using both sides of the brain–the left-brain side that is good at math and finance, and the right-brain side that can judge management and write clearly.

Having the ability to live through volatility without changing your investment thought process.

“I would argue that none of these traits can be learned once a person reaches adulthood,” Sellers told the students. “By that time, your potential to be an outstanding investor later in life has already been determined.”

Sellers isn’t saying it’s not important to read as much as possible and always strive to be a better investor. He’s just pointing out that people hoping to be the next Buffett probably have about the same odds as winning the jackpot.

Research backs him up. Studies have shown that most mutual fund managers don’t beat the market over time. While the market isn’t always efficient, it’s priced correctly enough that it’s tough to beat, especially after taxes and fees.

The good news? It’s easy to tie the market and achieve solid returns through low-cost index and exchange-traded funds. And you don’t even have to go to Harvard to learn that.


  • f4td4ddy

    Back when Peter Lynch was hailed as a bright and great manager for running the Magellan fund, some guy ran numbers and determined that according to just random chance, with all the other money fund managers out there, random picking ought to have resulted in about 5 people as or more successful as Lynch. That this didn’t happen is a testament to something, “born with it” or something else. Luck and patience have a lot to do with it as well as research and confidence.

  • freewheeling

    The analogy that’s often made is coin-flipping. The odds say one of 1,024 coin flippers should be able to flip heads every time for 10 tries. Similarly, 1 in 1,024 mutual fund managers should be able to beat the market for 10 years straight. Since the population of managers far surpasses 1,024, there’s bound to be at least one person who consistently beats the market. But it’s hard to know if it was solely luck or if it’ll continue. And also to know who that topnotch “coin-flipper” would be ahead of time.