Becoming an Intelligent Investor

This is a guest post by Anthony Simola, CEO of Simola Technologies Inc. and author of “The Roving Mind: A Modern Approach to Cognitive Enhancement.”

Benjamin Graham’s popular classic “The Intelligent Investor” and the more technical textbook it is based on, “Security Analysis,” lay out a value-oriented approach to investing in publically traded securities, most notably bonds and common stocks of stable businesses. Sufficiently diversified, purchasing assets at a margin of safety—a price discounted to inherent value—yields desirable returns in the long run despite short-term gyrations in the market. Although Graham and his most famous disciple, Warren Buffett, have on various occasions discussed at length how “irrational exuberance” tempts emotional investors into foolish decisions, the psychological workings of the analytical approach behind prudent investing is left largely untouched. This article, then, will briefly overview the means of acquiring that superior decision-making ability.

Literature in financial theory tends to stress rationality and logic disproportionately over other factors governing human behavior—instinct, habit, emotion, and desire. We like to think of ourselves as civilized animals in control of ourselves yet in reality we often stray from worthy goals due to the more primitive parts of our nature. Exercising mastery over yourself comes from consciously changing your actions and outright manipulating yourself by making use of the known laws in behavioral psychology.

Social pressure from your peer group may induce a positive change in your life, even if that change originates in the discomfort of letting your acquaintances down and not rational reasoning. Conditioning yourself like an animal to respond in a certain way to cues or repeat particular behaviors may not seem glamorous but it can serve you in advantageous ways.

Another factor pertaining to your capacity to exercise sound judgment relates to building a vast supply of knowledge by reading to draw from later on. Consuming a combination of newspapers, magazines, financial statements, reports, and books will allow you to develop an intuition concerning the deals you pursue. Reading history and staying informed on popular and secular trends will also strengthen your common sense and supplement your quantitative analyses. Knowledge, much like your fortune, will compound geometrically over time, with your greatest gains coming as you progress. Nevertheless, keep in mind that the Web-enabled overabundance of information can be detrimental to you, so consider how necessary a piece of information is before absorbing it.

When researching or working, make an effort to effectively manage the distractions in your immediate environment and your life more generally. These can range from unnecessary apps on your smartphone to unpleasant individuals to time-guzzling commitments. Similarly, avoid multitasking if the tasks at hand are making you deviate from something more important—on the other hand, this can be acceptable behavior if the activities you are engaged in converge on a singular goal.

Taking care of your mind extends far beyond continuous learning—over the course of your life, eat a balanced diet, rest adequately, and exercise in moderation. Physical and cognitive health are assets you need to manage with extraordinary care because you cannot really replace them or diversify your holdings, so to speak. Once you have the fundamentals covered, you can move on to more advanced things like nutritional supplements and nootropics, always consumed under the supervision of a licensed medical professional.

Evaluating ideas, concepts, and information by breaking up entities into their components parts and analyzing those individually is a learned skill you can perfect over the years. The best check on the validity of your assumptions and conclusions is a group of critically thinking like-minded individuals. The collective intelligence of shrewd people can lead to accurate thought and superior decisions. However, choosing the wrong individuals results in chaotic mob psychology and can lead to disaster.

Therefore, recursive self-improvement and periodical objective self-assessment of you as an individual are the crucial driving factors of perfecting your mind. Maintaining health, accumulating knowledge, and honing your higher faculties are by no means the definitive solution the problem of becoming an intelligent investor—nonetheless, when combined and repeated over a period of many years, they yield you a strategic advantage your competition will have a hard time replicating, resulting in stronger returns financially as well as cognitively.

Watch INDX.GURU's CCO, Yvette Le Grew chat with Sky News - Technology Behind Business about disruption in the investment space.

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