10 Attributes Great Investors Share

Michael Mauboussin, head of global financial strategies at Credit Suisse, compiled a list of the top 10 attributes he believes the great fundamental investors share.

Michael Mauboussin, head of global financial strategies at Credit Suisse, compiled a list of the top 10 attributes he believes the great fundamental investors share. Those attributes are:

1. Be numerate (and understand accounting): Great investors are adept at analyzing financial statements to understand how a business has performed and to gain insight into how it may perform in the future.

2. Understand value: Great investors focus on both the magnitude and sustainability of free cash flow, including what it says about the current level of valuation.

3. Properly assess strategy: Great investors only invest in companies whose business models they can clearly explain and that have competitive advantages that are sustainable.

4. Compare effectively (expectations versus fundamentals): The ability to compare fundamentals against expectations and differentiate the two distinguishes average investors from great investors, according to Mauboussin.

5. Think probabilistically (there are few sure things): Outcomes largely affected by probability require a focus on how decisions are made rather than just the outcome alone. Realizing how profitable a correct decision is matters more than how many decisions are correct.

6. Update your views effectively: Great investors seek information on views different from their own and update their beliefs when the evidence says they should, whereas most people prefer to keep the beliefs constant over time.

7. Beware of behavioral biases: Great investors not only understand the impact of heuristics (mental shortcuts) and biases, but take steps to manage or mitigate their impact on investment decisions.

8. Know the difference between information and influence: Prices provide indications about expectations for future performance, but they can also be a source of influence—prompting investors to buy out of fear of missing out. Great investors separate expectations and fundamentals.

9. Position sizing: Success in investing comes from finding an edge and taking full advantage of it by allocating the proper amount of money to it (position sizing). Most investors do a poor job of position sizing, whereas great investors are more effective at it.

10. Read (and keep an open mind): Great investors generally allocate time to reading, read material across a wide spectrum of disciplines and read material they do not necessarily agree with.

Source: “Thirty Years: Reflections on the Ten Attributes of Great Investors,” Michael J. Mauboussin, Dan Callahan and Darius Majd, Credit Suisse, August 4, 2016.