Building The Perfect Investor

by Patrick O'Shaughnessy, Millenial Invest

The idea for this post came from Nas and Charles Murray. That’s got to be the only time those two have been mentioned together in a sentence, so let me explain.

Nas has a song (you can listen here, not safe for work at all and may offend) where he—how can I put this nicely— combines the best elements of women he loves into the perfect woman.

Charles Murray wrote a thought provoking book about the problems with our education system in which he outlines Howard Gardner’s seven different kinds of intelligence.

Somehow these two things coalesced in my brain and I thought it’d be fun to design the perfect investor using the these seven different kinds of intelligence, in the spirit of Nas’s “Makings of the Perfect _____.”

First, here are the different kinds of intelligence along with a brief description by Murray from his book Real Education: Four Simple Truths for Bringing America's Schools Back to Reality:

1. Bodily-kinesthetic intelligence encompasses physical skills—gross motor skills, fine motor skills, and more generally, the ability to exert subtle and precise physical control over one’s movements.
2. Musical intelligence is what it sounds like, encompassing highly developed senses of pitch, rhythm, tones, and the ways in which they combine.
3. Interpersonal intelligence involves interactions with others. People with high interpersonal intelligence are good at sensing others’ emotions and motivations. They are empathetic, able to work effectively as part of a group, good at communicating with others, and effective at manipulating the responses of others.
4. Intrapersonal intelligence involves knowing oneself and being able to use that knowledge effectively. People with high intrapersonal intelligence have a realistic grasp of their own emotions, motivations, strengths, and limits. They are able to exert self-discipline and defer gratification. They can remain analytical in times of stress. Courage and prudence are parts of intrapersonal intelligence. In excess, some of the qualities that go into intrapersonal intelligence can express themselves as neuroticism or extreme introversion, and can paralyze action through over-analysis.
5. Spatial intelligence refers in part to the ability to visualize and mentally manipulate objects, as when an engineer holistically grasps how the parts of a mechanism interact or a chess master plays a game without looking at the board.
6. Logical-mathematical intelligence involves numbers, logic, and abstractions. By definition, high logical-mathematical intelligence means the capacity for advanced mathematics, but it also expresses itself in the ability to mount and understand complex arguments and chains of reasoning, and the ability to make subtle distinctions. Logical-mathematical intelligence is especially important in the sciences and the law, but is useful for every occupation.
7. Linguistic intelligence embraces everything having to do with language and the information language conveys. High linguistic intelligence includes the abilities to absorb complex written text and to express oneself precisely, eloquently, or persuasively as the situation may require. The ability to learn foreign languages easily is associated with high linguistic intelligence. Memory—the ability to store and retrieve large amounts of information at will—is part of linguistic intelligence.

So first, let’s rank these intelligences in order of importance for investors.

1. Intrapersonal intelligence – Temperament—specifically the ability to stick to strategy when times get tough—is the defining characteristic of every great investor I’ve ever studied.  The ability to control (or ignore) one’s emotions is key in markets. As Confucius apocryphally said, "he who masters himself is the mightiest warrior."
2. Logical-mathematical intelligence – Building complex chains of reasoning is essential for successful investing. The ability to think on the 2nd and 3rd level is a huge edge.
3. Linguistic intelligence – Many great investors (especially activists) have a way of articulating their argument in a convincing and compelling way. Building and communicating an investment thesis is a key advantage.
4. Interpersonal intelligence – Some might place this lower, as it is more relevant for sales roles than for investing. But along with linguistic ability, the ability to work well with people and be there for them when times are tough is a useful skill for investors, if only to keep people from redeeming at the wrong time.
5. Spatial intelligence – There is probably something helpful about having spatial intelligence for investing, perhaps being able to visualize the big picture.
6. Bodily-kinesthetic intelligence – I think general health is an advantage, but health is different from bodily-kinesthetic intelligence. Don’t see how this would be relevant for any investor.
7. Musical intelligence – would love to hear an argument for this mattering, I can’t think of anything.

I think the best qualified person to build the perfect investor would be Tren Griffin or Jack Schwager, but here is my attempt.

• Buffett’s intrapersonal intelligence. He is the master of the discipline and self-control that are the keystones of a great investment process. (Hon. mention: Seth Klarman)
• Jim Simons’s logical-mathematical intelligence. Renaissance Technology’s track record is outrageous, built on the back of an obviously effective quantitative investment process engineered by Simons and his team. He was a code breaker and expert in pattern recognition.
• Howard Mark’s linguistic intelligence. I toyed with putting Buffett here again, but I’ve always loved Mark’s ability to write and communicate his investment philosophy and individual investment ideas.
• Jack Bogle’s interpersonal intelligence. I’ve watched a lot of Bogle interviews and am constantly amazed at how likeable and clear he is. My guess is he could sell underwear to a nudist.
• Peter Thiel’s spatial intelligence. This is a bit of a stretch, but I know he is very good at chess. (Hon. mention: Ray Dalio)
• Magic Johnson’s bodily-kinesthetic intelligence. Great investor, legendary athlete.
• ???’s musical intelligence. Who knows?

This investing Frankenstein would be an unstoppable force.

Who would be part of your investor Frankenstein?

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