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6 Steps to Becoming a Master Investor

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In addition to managing a real-money Rising Star Portfolio for The Motley Fool and being an analyst on The Motley Fool's Million Dollar Portfolio and Income Investor premium services, I'm taking part in the Fool's Analyst Development Program (known as ADP here at Fool HQ). The foundation of ADP is our formula for becoming an expert. You can apply this formula to almost any endeavor -- painting, ice skating, competitive eating -- but we Fools, of course, are focused on becoming master investors. Regardless of which field you want to master, the formula's six building blocks are the key. And they are:

1. A growth mindset: Is intelligence fixed from birth? Some would say yes, but psychology professor Carol Dweck argues that intelligence can be developed if we have a growth mindset about it. Dweck ran an experiment on elementary students whom school personnel had identified as helpless. Through a series of exercises, the experimenters trained half the students to see insufficient effort as the cause of their struggles and encouraged them to keep going. Those children learned to persist in the face of failure and to succeed, while the control group showed no improvement at all. If we want to improve, we have to believe that we can improve. 

2. Effortful study: Doing things you're comfortable with and already good at allows your abilities to reach a plateau. Effortful study, in contrast, includes taking on challenges just beyond your competence. In my case in ADP, this means studying the master investors and reverse-engineering their successes and failures. In addition, master investor Charlie Munger has said that learning the key points in all the major academic disciplines is of great benefit to investors. We need to partake in effortful study on a regular basis, and I try to devote at least two hours per day to my studies.

3. Deliberate practice: It's not enough to sit back and read The Wall Street Journal or watch CNBC and think you're improving as an investor. You actually have to study and value businesses. You also have to talk about your ideas and receive feedback so you can adjust and improve your process. This approach is a key part of ADP, and we regularly pitch stocks to our advisors. Those pitch meetings have led to my Rising Star buy recommendation on Apple (Nasdaq: AAPL  ) , and to the inclusion of McDonald's (NYSE: MCD  ) and Intel (Nasdaq: INTC  ) as official Income Investor selections. They've also been a major part of my development as an analyst and investor. But remember, study your successes and your failures so you learn not to repeat your mistakes.

4. Self-awareness: To become a master, you must be honest and humble enough to identify your own weaknesses, strengths, and natural tendencies. Improve on your weaknesses so they don't destroy you, and then focus on developing your strengths. After all, your strengths are your competitive advantage -- they're what give you your edge. It's vital to identify them early on and spend as much time as possible strengthening them. 

5. Motivation: Without motivation, everything I've just talked about is worthless. Even the most talented people will fail if they don't have the motivation, desire, and work ethic required to succeed. I've seen amazingly talented No. 1 overall draft picks fail miserably in the National Football League while undrafted and less physically gifted players have earned their way into the Hall of Fame.

6. Time: You don't become an expert overnight. Research has shown that it takes 10 years or 10,000 hours of disciplined practice to become a master -- and performance is often proportional to time spent practicing. In a study of 20-year-old violinists by psychology professor K. Anders Ericsson, the best group (as judged by conservatory teachers) averaged 10,000 hours of practice over their lives; the next-best averaged 7,500 hours; and the next after that, 5,000. We value experience when evaluating a company's management team, and the fact that Warren Buffett has successfully led Berkshire Hathaway (NYSE: BRK-B  ) for decades was a major reason the Million Dollar Portfolio team recommended the stock.

My challenge to you
Where would you like to be in 10 years? If you're willing to do all of the things I've written about here, I believe you'll be successful as you work toward mastery. So why not start today? A decade-long effort may seem daunting, but remember, the journey of a thousand miles begins with a single step.

Joe Tenebruso manages a real-money Rising Star Portfolio for The Motley Fool and is an analyst on The Motley Fool's Million Dollar Portfolio and Income Investor premium services. Joe has written puts on Apple. The Motley Fool owns shares of Apple, Berkshire Hathaway, and Intel and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel, Berkshire Hathaway, Apple, and McDonald's, as well as creating bull call spread positions in Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Read/Post Comments (8) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2011, at 5:23 AM, kariku wrote:

    7. Don't listen to MF ! (they've recommended, among others, NFLX (recently even) and DWA)

  • Report this Comment On November 01, 2011, at 10:51 AM, DJDynamicNC wrote:

    Some of the best advice I ever received came from an electronic bill board in Toronto which displays different random feel-good messages each day. Usually it's just cheesy cliches, but one that stood out and that I took to heart was this:

    "A year from now, you'll wish you had started today."

    It seems obvious as a concept, but the phrasing on that really drove the point home for me.

  • Report this Comment On November 01, 2011, at 1:44 PM, shamapant wrote:

    The reverse engineering of master investor's concepts is a fantastic idea. I have actually started to build my strategy around Buffett's strategy with a few slight personal tweaks. The CAPS system in my opinion is a great place to watch your own speculation, because its so easy to watch a pick go up and down without the money involved, but really building a long term strategy takes more than putting an 'outperform rating' on a stock. Ioved the article

  • Report this Comment On November 01, 2011, at 3:53 PM, VolkOseba wrote:

    @kariku That's what the community is here for... to counteract the newsletters.

  • Report this Comment On November 01, 2011, at 3:59 PM, jordanwi wrote:

    @kariku yeah, I remember that! When the stock price was 20 dollars. 400% today, much higher a couple months ago. That's really, really good advice. Whoever bought nflx at at 300 dollars should look a little closer at value metrics.

  • Report this Comment On November 01, 2011, at 4:36 PM, Sadalmelik wrote:

    DJDynamicNC, I had a similar experience, but with a Fortune Cookie. The only one I ever got (don't care much for chinese food) and it said:

    "You'll get more done if you start now."

    I pinned it to the wall opposite the way I look when I am working, to remind me to get back to it.

  • Report this Comment On November 09, 2011, at 3:56 AM, kariku wrote:

    @jordanwi I said recently, i.e. when it was around 300

  • Report this Comment On April 10, 2012, at 12:33 PM, Mliaom wrote:


    This might be one of the best article I have read in a long time. Thank you for wonderful advice.


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