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Discipline Or Genius: What Matters More To Your Investment Results?

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Warren Buffett once said, "The most important quality for an investor is temperament, not intellect."

But do we actually believe this?

We live in a society that favors the bold and idolizes genius.

Nuance is out.

Unquestioned confidence is in.

We want clear, black-and-white narratives filled with reassuring promises about the events of tomorrow. Above all else, we crave certainty in a space where none exists: the future.

Nowhere is this desire for certainty, for being bold and for betting on genius, more dangerous than it is when it comes to our investing strategy. Our default mode is to treat investing, as Alexis de Tocqueville wrote nearly 200 years ago, as “A game of chance [pursued for] the emotions it excites, as much as the gain it produces.”

So how can you overcome this inherent emotional appeal of making investment decisions based on smart-sounding forecasts? Remind yourself – over and over again – that it doesn’t work.

The Smartest Man in Europe

Suppose you have personal access to one of the world’s most intelligent businessmen and investors—someone described as The Smartest Man in Europe (TSMIE). He’s willing to give you his forecast and investment recommendations for the upcoming year. Having access to this experience and genius would surely lead to superior investment results, right?

Unfortunately, no.

Bryon Wien writes annually about this Smartest Man in Europe. It’s enjoyable reading, peppered with the mystery man’s bold, self-assured thoughts on the investment landscape. Wien describes him as follows:

“a finance person in his 80’s who has built his reputation by identifying important trend changes early and putting serious money behind his conclusions. Descended from a mercantile family that operated canteens selling food and weather protection along the Silk Route, he was educated in Europe, trained in New York...Listening to conversations around the dinner table, he was encouraged to focus on the major events early, and his success is a product of this skill. That success is reflected in his homes and other comforts he enjoys. His art collection spans centuries, from Canaletto to Koons, but what keeps him vibrant is ideas.“

Obviously, he owns an impressive resume and is a formidable foe. But does a portfolio built on TSMIE‘s such bold predictions lead to better investment results than the portfolio of someone we will call the “Deliberate Investor”?

The Deliberate Investor

The “Deliberate Investor” could be your next-door neighbor. Hard working certainly, but not the descendant of a privileged family. Instead of dinner conversations about major world financial events and how the family could turn these to their advantage, conversations were more likely about school, sports, or friends—normal average-Joe kind-of stuff.

However, learning about the concept of compounding in high school algebra, the Deliberate Investor came to appreciate the benefits accruing to those willing to think and act for the long-term. After graduating college and starting a career, the Deliberate Investor read studies showing the benefit of saving each year into a diversified, low-cost portfolio. Impressed with the long-term results a portfolio like this was capable of producing, the Deliberate Investor was systematic about sticking to the strategy from year to year.

Sure, there were adjustments needed over time as goals and objectives changed, better investments became available, and for tax reasons, but the general strategy remained—To invest in a way that aligns with long-term objectives. The Deliberate Investor’s portfolio wasn’t altered based on current events, forecasts or emotions (chiefly, fear and greed).

So, here you have two very different people: one a descendant from a European, aristocratic family, and the other, your average, hard-working, next-door neighbor. Again, who do you think makes the better investor?

Who's the Better Investor?

Going back to 2009, we combed through each of Wien’s TSMIE letters for investment recommendations. He makes comments like “I am very bullish on gold”; “If you want to have some paper money, buy Swiss francs”; and “I remain positive on China. It is the new world power.” We built an equal-weighted portfolio based on these recommendations each year.

The Deliberate Investor, on the other hand, maintained a basic and disciplined portfolio: 60% world stocks and 40% bonds. This investor didn’t alter the mix each year based on which regions had the most potential for growth, which currencies appeared strong or weak, or concerns about inflation.

Who came out ahead?

Turns out it wasn’t even close: Over the six years from July 2009 – July 2015, the Deliberate Investor’s portfolio returned 9.5% annually compared to just 5.8% annually for the TSMIE portfolio. What’s more, this more than 60% better annual return was achieved with less risk. The Deliberate Investor portfolio, despite no changes based on the current economic environment, had 65% lower volatility and maximum decline of 50% less than the counterpart.



We live in a society obsessed by genius and predictions of the future. It’s tempting to believe the narratives spun by smart people, using compelling facts to predict this or that thing will, without a doubt, take place.

But, as Philip Tetlock shows in his book “Expert Political Judgment, no matter what level of genius, humans are simply bad at forecasting the future—especially in highly complex systems like world events, politics or financial markets. As the quote goes, “It’s difficult to make forecasts, especially about the future.”

Each year, the stories, rationale and investment suggestions put forth by Wein and other pundits are certainly compelling. But, the real genius is in treating this mere speculation for what it is: entertaining musings, which are completely worthless to your investment strategy.

Sometimes the real genius is in realizing it doesn’t take a genius to be a successful investor. Sometimes the “Deliberate Investor” is more successful than “The Smartest Man in Europe.”


**A special thanks to Rushil Patel for help with this post. Rushil interned with us this summer from Cornell University and did a lot of the research for this post. If the rest of the graduating class of 2018 is anything like Rushil, the future is very bright indeed!





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Cordant, Inc. is not affiliated or associated with, or endorsed by, Intel.

Published on September 22, 2015

Isaac Presley, CFA

Isaac Presley, CFA

Isaac Presley is the President and Director of Investments for Cordant, a wealth management firm serving current and former Intel employees. To learn more, you can read Isaac's full bio.

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