The Importance of Mental Strength

Physical strength, intellectual strength, and mental strength are the dimensions that investors can be measured. Yet, among these three dimensions, mental strength is probably both the hardest to acquire and the most important to have.

In investing, long hours do NOT guarantee good results. Investment analysts are hardworking, yet most investing programs do not yield good results. So, while physical strength and endurance still matters, it does little in separating investors.

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The Study of History Matters for Successful Investing

I truly believe it. I have heard, time and again, from the world’s top investors — the No.1 thing for investing is studying history. I am very lucky, because I have a passion for studying history.

Why is history important? It is because documented history is perhaps the only reliable source of knowledge for developing an accurate understanding of the present. Said differently: If we want to understand what is going on now, we must understand history.

To me, studying history is a process of acquiring two things at once: 1) great ideas from great minds, and 2) materials for me to form new ideas. Both are key ingredients that feed my thinking process, allowing me to see what drives time forward — i.e., what makes the world move. From there, I can acquire a more accurate understanding of the present and I can structure a sensible framework to anticipate what might happen in the future.

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If most of the world that we know today was indeed created in the 20^th century, having some knowledge about what happened right before — i.e., during the 19^th century — would be helpful.  

Recently, I scanned through three books (more precisely, I read a few chapters of each book).  They all focus on 19^th century matters, ranging from economic growth to scientific developments.  

• Osterhammel, Jürgen. The Transformation of the World. Princeton University Press.
• Maier, Charles. Leviathan 2.0: Inventing Modern Statehood. Harvard University Press.
• Frieden, Jeffry. Global Capitalism. W. W. Norton & Company.

Reading history helps us understand what makes history move.  It also helps us gain foresight into what can happen next in our own times.

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I might have already read the book long ago, probably its Chinese translation copy when I was in college or in high school. I cannot exactly recall. Over the weekend, I finished reading the English copy of The Alchemy of Finance for the first time. To be frank, I was expecting more than what I ended up getting. But that does not stop me from saying that this book remains a unique investing book. If you have not read it, you should consider giving it a try.

I am not going to repeat what the book preaches but to share a few thoughts I had when reading through it.

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You Can Be a Stock Market Genius has handsomely exceeded my expectations, not because of how short the book is (yes, it is a quick read) but because of how good its messages are. Joel Greenblatt compounded his fund at 50% a year for about ten years before returning all external capital in 1995. Surely, there is something to be learned from Joel’s book. Here we go.

Understand people’s motives

The word “motive” / “motivation” appeared at least 10 times throughout the book, while accounting-oriented fundamental analysis did not make an appearance until the second last chapter. It is not that proper accounting computations are unimportant but that for successful investing, a human understanding of the other humans in the same market is terribly important as well. That, I think, was a key message that Joel was communicating. In analyzing spinoff situations, Joel wrote, “analyzing the actions and motives of insiders … is of particular benefit.”

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Disclaimer: given the uniquely notorious reputation surrounding the book and the author, I want to make it clear that, in this article, I am not commenting on the morality of the book nor the author — I have zero intention in writing or implying anything in that regard.

Recently, I got a chance to read The Prince — the remarkable yet controversial book by Niccolò Machiavelli. Many people hold extremely negative views about the book and its author. Others see the book as one of the most influential works for modern political philosophy. I didn’t expect much prior to reading it.

Post the read, to my surprise, I realized the author Machiavelli might possess some of the qualities that are needed for successful investing.

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