Great independent investors not only have high IQs. They also have high EQs!

Wednesday: The Independent Investor FROM THE DESK OF MILES EVERSON: Success in investing doesn’t only come from having a good IQ (intelligence quotient). There are also a lot of other factors that play an important role in your investment decisions. One of these factors is your EQ (emotional quotient). To prevent acquiring losses in your investments, you have to be the master of your own emotions. Keep reading to know more about the importance of EQ in making wise and winning investment decisions. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

Great independent investors not only have high IQs. They also have high EQs! Last week, we talked about the first discipline included in the book, “Investing Disciplines of the Giants.” There, we discussed the importance of an independent investor’s commitment to maximizing his investment wealth and the things you can do to make the most out of what you have. Today, we’ll be tackling another important investing discipline, which is… Controlling your emotions! According to the “Investing Disciplines of the Giants” book, if there’s any single problem that led to the biggest losses for many investors, that would have to be their emotions. Why is that so? It’s because sometimes, your emotions would compel you to make impulsive decisions that do not necessarily guarantee success. That’s why there’s this saying: “Don’t let your emotions get the best of you!” … because when you do, you might make decisions you will regret later on in your life. Let’s take a look at the life of one of the greatest investors of all time… Jesse Livermore was an American stock trader. In 1929, when most of the world lost money in the crash before the Great Depression, Livermore experienced the opposite: He personally made USD 100 million that year! Take note: That was in 1929. If he did that in 2008, he would have made over a billion dollars! So, what’s one of the things that Livermore did right during that time that enabled him to earn more money instead of losing it―just like the rest of the world did? He didn’t lose control of his own emotions. Think about it. During that time, maybe a lot of investors are freaking out about the crash before the Great Depression. As a result, their emotions got the best of them and instead of composing themselves and strategizing about what they should do to avoid losses, they caved in to their impulses. That might have caused their actual losses during that time. On the other hand, Livermore wasn’t like any of those panicking investors. In fact, his investing acumen was so strong that a book was written about him. It’s titled, “Reminiscences of a Stock Market Operator.” Until today, that book remains one of the most widely read and quoted books of investors. Livermore’s discipline reflects the mindsets of the giants of investing, especially in this area: “… a speculator’s chief enemies are always the natural impulses of his own human nature.” To summarize everything we’ve mentioned, all the disciplines of great investing break down as soon as one loses control of his or her own emotions. Here are a few quotes from some of the world’s great investing giants (most of them are students of Ben Graham): “Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.” - Walter Schloss “Success in investing doesn’t correlate with IQ… what you need is the temperament to control the urges that get other people into trouble in investing.” - Warren Buffett “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw irrational emotion under control. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” - Charlie Munger Of course, let’s not leave out what these three investors’ professor, Ben Graham, said in his own words: “Individuals who cannot master their own emotions are ill-suited to profit from the investment process.” The bottomline? IQ (intelligence quotient) is not the only thing needed in great investing. You also need to have a good EQ (emotional quotient) so you won’t be a slave to your own impulsive desires. By mastering these two factors, you’ll be able to make balanced, wise, and reasonable decisions in investing. Hope you’ve found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Wednesday’s The Independent Investor! Learn more about Balancing Investments to Fit You on next week’s The Independent Investor!