178 THE WARREN BUFFETT WAY
market is, by def inition, the collective decisions made by all stock pur-
chasers, it is not an exaggeration to say that psychological forces push
and pull the entire market.
Anyone who hopes to participate prof itably in the market, therefore,
must allow for the impact of emotion. It is a two-sided issue: keeping
your own emotional prof ile under control as much as possible and being
alert for those times when other investors’ emotion-driven decisions
present you with a golden opportunity.
The f irst step in properly weighting the impact of emotion in in-
vesting is understanding it. Fortunately, there is good information at
hand. In recent years, psychologists have turned their attention to how
established principles of human behavior play out when the dynamic is
money. This blending of economics and psychology is known as behav-
ioral f inance, and it is just now moving down from the universities’
ivory towers to become part of the informed conversation among invest-
ment professionals—who, if they look over their shoulders, will f ind the
shadow of a smiling Ben Graham.
THE TEMPERAMENT OF A TRUE INVESTOR
Ben Graham, as we know, f iercely urged his students to learn the basic
difference between an investor and a speculator. The speculator, he said,
tries to anticipate and prof it from price changes; the investor seeks only
to acquire companies at reasonable prices. Then he explained further:
The successful investor is often the person who has achieved a certain
temperament—calm, patient, rational. Speculators have the opposite
temperament: anxious, impatient, irrational. Their worst enemy is not
Success in investing doesn’t correlate with IQ once you’re
above the level of 125. Once you have ordinary intelligence,
what you need is the temperament to control the urges that
get other people into trouble in investing.^1
WARRENBUFFETT, 1999