Reuters blogger Felix Salmon posted a video last week arguing against attending meetings like the Ira Sohn conference in New York -- an annual gathering in which some of the world's richest hedge fund managers talk about themselves and share an investing idea or two.
These people are just talking up their books, says Salmon. Sales pitches. Infomercials. As he puts it: "If you want to go there and spend your money and eat, like, rubber chicken, and rub shoulders with plutocrats, then all power to you. But don't pretend that you're doing this for your investment portfolio."
Joe Weisenthal of Business Insider came back with a thoughtful rebuttal. Chasing stock tips might be futile, he said, but "It's not often that you get to hear the thought process and reasoning employed by these financial professionals."
Having attended a few of these conferences, and crashed a few hedge fund meetings, I think Wiesenthal's spot-on. (Salmon conceded as much.) The value of the meetings doesn't lie in the pitches, but in learning what kind of people successful investors are. How do they work? What do they read? Where do they get their ideas?
Here are seven common traits I've noticed among some of the world's best investors.
1. They learn from each other
The Securities and Exchange Commission makes all money managers running more than $100 million report their stock holdings every quarter. It's called a 13F filing. I've come to suspect that most money managers don't find this burdensome at all. They love seeing what the competition is up to.
Value investor Mohnish Pabrai says he spends a good amount of time poring over these filings in search of investment ideas. "I rarely use computer screens to find ideas," he said last year. "I am looking at 13Fs from folks I respect quite a bit." You could have used this filing, for example, to see that Pabrai was buying shares of Wells Fargo in early 2009, before it tripled.
2. They use checklists
People usually screw up because either they don't know what they're doing, or what they're doing is so complex that they become forgetful. The airline industry has nearly eliminated the latter with a simple tool: checklists. The rate of human error in airline accidents fell precipitously after Boeing introduced pilot checklists in the middle of the 20th century.
Great investors are starting to catch on -- an outgrowth of Atul Gawande's excellent book The Checklist Manifesto. Several now use investment checklists before making new investments in an attempt to eliminate errors.
3. They don't watch CNBC
And if they do, it's on mute. Great investors tune out the noise. To take a dig at my own profession, the majority of financial news and analysis is not only useless, but dangerous, capable of swaying sound logic with fear and hype. Black Swan author Nassim Nicholas Taleb put it best: "The calamity of the information age is that the toxicity of data increases much faster than its benefits."
4. They aren't slaves to the calendar
I bought Microsoft about a year ago. It's done nothing since. A friend of mine who works at a hedge fund recently teased me sarcastically, "How's that working out for you?" Didn't bother me a bit, I said. I can wait.
He went on to tell me about the pressures of his hedge fund. Clients want monthly, weekly, and sometimes daily trading reports. He can't wait. He needs results now.
This slave-to-the-calendar mentality is one of the surest roads to mediocrity, if not ruin. (I hope he doesn't read this.) The greatest investors make it clear that they won't sacrifice long-term performance for short-term window dressing. Why would they? They're out to earn as much as possible.
5. They're diverse learners
Charlie Munger likes to talk about worldly wisdom -- mental models collected from diverse disciplines, entwined together to solve problems. It's the only way around the classic man-with-only-a-hammer-sees-every-problem-as-a-nail dilemma.
It's also vital in investing. The biggest challenges money managers come across have nothing to do with finance. Psychology, cognitive biases, geopolitics, engineering, history, and even anthropology can be some of the most practical skill sets.
Barry Ritholtz of Fusion IQ just wrote a great op-ed in The Washington Post regarding "five fields that are hugely helpful to asset management." Ritholz lists historians, psychiatrists, trial lawyers, mathematicians and statisticians, and accountants. Anything but an MBA, really.
6. They focus on their mistakes more than their successes
Every investor will inevitably make mistakes. What happens afterward distinguishes the hacks from the pros.
Pabrai, mentioned above, spends more time at his annual meeting explaining what he did wrong than what went well, even in years when his returns are off the charts. His investors love the humility, and most importantly, he learns from the mistake (adding it to his checklist!) to prevent recurrences. Those who bury and ignore mistakes are bound to repeat them.
7. They're small
Berkshire Hathaway (NYSE: BRK-B ) is the best example. One of the largest investment funds in the world is run by two people: Warren Buffett and Charlie Munger.
This skeleton-crew setup is actually common among great investors. Some of the world's best investment funds often consist of a manager, a secretary, and an accountant. That's it.
That's all you need, really. Funds that employ legions of analysts and lawyers are usually doing really complicated things, increasing the odds that something terrible will happen. Investing isn't a game in which 100 junior analysts beat one seasoned, emotionally stable investor.
Quite the opposite, actually.
Check Fool.com every Tuesday and Friday for Morgan Housel's columns on finance and economics.