The more I learn about Warren Buffett and other successful entrepreneurs and investors, the more convinced I am that their success can be replicated -- perhaps not to the same magnitude, but to a considerable extent nonetheless.
The key is to train your brain how to think. Buffett doesn't have a patent on value investing. It isn't proprietary. He's open and honest about the theoretical framework underlying his approach -- namely, that of Benjamin Graham and Philip Fisher -- and he discusses it at length in Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) annual report.
What distinguishes people like Buffett is how they make decisions. He, in particular, is a consummate rationalist. He approaches issues in a deliberate, calm, and dispassionate manner. And by doing so, his decisions aren't adulterated by the logical errors that obscure a less rational person's thought process.
How Buffett manages fear
Nothing illustrates this better than Buffett's philosophy toward fear. Everyone knows his saying to be "fearful when others are greedy and greedy when others are fearful." But what's less appreciated is how incredibly radical this advice is from a biological perspective.
In the whole scheme of things, modern humans are little more than well-accessorized cavemen -- think Fred Flintstone as opposed to George Jetson. Yes, we have houses and cars. Yes, we listen to music on our iPods and watch movies on our iPads. And, yes, medicine and other sciences have come a long way since our club-carrying days.
But the commonalities that we share with our ancient ancestors greatly outnumber the differences. And this is particularly true when it comes to the brain. "Our brains were simply not shaped by life in the world as we know it now, or even the agrarian world that preceded it," wrote Daniel Gardner in The Science of Fear.
They are the creation of the Old Stone Age. And since our brains really make us what we are, the conclusion to be drawn from this is unavoidable and a little unsettling. We are cavemen. Or cavepersons, if you prefer. Whatever the nomenclature, we sophisticated moderns living in a world of glass, steel, and fiber optics are no different, in a fundamental sense, than the prehistoric humans for whom campfires were the latest in high tech and bison hides were haute couture.
The most important consequence of this for our purposes is the way humans are programmed to respond to fear. That is, in direct contradiction to Buffett's advice, we seek to avoid it at all costs regardless of whether the presumed threat is in the form of a saber tooth tiger or a figurative bear market. Psychologists refer to this as loss aversion -- a slight variation of which is known as risk aversion.
The takeaway for investors is simple. Rationality wins. When Buffett says things like the "most important quality for an investor is temperament, not intellect," we should take him at face value and respond in kind, as the rewards from following his advice will greatly outweigh the time and effort spent doing so.