1 Warren Buffett Secret ASX Investors Have Forgotten

Warren Buffett knows this simple fact, and great investors use it to their advantage, but most ASX investors seem to forget it.

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Every year, I'm forced to find 250 ways to write the same thing. Deliver the same message.

'Should you buy Commonwealth Bank of Australia (ASX: CBA) shares?'

'Is Myer Holdings Ltd (ASX: MYR) a sell?'

Believe me or not the message is the same in everything I write. But the subject is different.

Investing in shares is, as Morgan Housel once wrote, "99% doing nothing". But, "it's the other 1% that will change your life".

No-one wants to click on a finance article titled, "Nothing has changed with CBA today but the price, click this link anyway".

Stupid, Raised to the Power of Decisions

You. Me. Them. Him. Her.

We all make mistakes.

For example, this morning I tried to balance a cup of coffee between my forearm and hip to press the pedestrian crossing blinker at the lights.

You can guess how it ended.

I have done it 1,000 times, but it was stupid. Why not put the cup down then press the button?

Every day we make thousands of small decisions like crossing the road.

And every day we take in information faster and faster.

Each sound bite could result in a decision.

But no matter how easy the decision might seem, we can get it wrong.

It is the same in investing. Just look at fund managers.

They might have $200,000 in debt from spending eight years at university studying finance.

But even they get it wrong 85% of the time, after fees, according to S&P research.

There is a reason why professional investors with less than 30 stocks in their portfolio do better on average 1% to 3% per year than those with more stocks.

When I worked for the leading funds management research house in Australia, I began to realise that the best-performing fund managers had fewer stocks.


Because it required them to make fewer decisions. Better decisions.

Less buying. Less selling.

More nothing.

More holding.

More patience.

Warren Buffett, as usual, says it best:

"I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it."

"Wait for a fat pitch and then swing for the fences."

By "all day", I think he means 'many years if need be'.

In his book, The Outsiders, which profiles eight of the best CEOs of recent times (including Buffett), William Thorndike concludes:

"Although the outsider CEOs were an extraordinarily talented group, their advantage relative to their peers was one of temperament, not intellect."

Between 2006 and 2008 (the Global Financial Crisis), Buffett made no major investments. Depending on what you classify as a 'major' acquisition — it is at least two years of doing 'nothing'.

That's right, despite billions of dollars at his disposal. He did nothing.

As Joe Hyams put it in his book Zen in The Martial Arts, "doing nothing can sometimes be more important than doing something".

Foolish Takeaway

Financial markets will rise and fall. But you need not react. Buffett's secret is temperament.

If every ASX investor made half as many decisions, I'm confident our investing returns would improve dramatically.  

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. You can follow him on Twitter @OwenRask. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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