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Investing to beat the markets

16 July 2019 Allan Gray

Achieving success as an investor in today’s market may feel like a gambler’s game. But, according to Maria Konnikova, renowned international guest speaker at this year’s Allan Gray Investment Summit, it is possible beat the market if you master key skills.

Achieving investment success in today’s world is uncertain, given that markets in the last decade have been extremely volatile. But the secret to creating long-term wealth is mastering your own behaviour.

This is the view of Maria Konnikova, renowned psychologist, New York Times best-selling author, professional poker player and guest speaker at this year’s Allan Gray Investment Summit, who says that the number one skill that distinguishes average investors from those who are great over the long-term, is humility.

“Being a successful investor can lead to overconfidence, which can result in investors making mistakes too easily,” says Konnikova, speaking from New York. “A great investor is humble as she understands that markets are unpredictable and is therefore able to take onboard feedback to inform her strategy.”

Below she shares the top three skills that all investors have who consistently beat the market.

Skill 1: Trust, but verify

“Investors evaluate stories all the time – whether of products, companies, or anything else that they are investing in; however, getting caught up in stories may mislead investors to overlook red flags.”

Konnikova explains that studies show that when people are in a storytelling environment they are more prone to believing what they hear and taking in the narrative, rather than spotting inconsistences or logical flaws. “Therefore, as an investor, if you believe the story being told, it is important to verify the information.”

She says that smart investors don’t distrust, but rather focus their attention on researching and checking the information given to them.

Skill 2: You need luck and skill

If you are a successful investor, are you lucky, or skilled? Konnikova says that both luck and skill play a part.

“The difference between skilled and lucky investors is that over extended periods, skill should prevail in delivering good investment outcomes, while luck can only persist for so long before it becomes undone.”

She explains that markets by their nature are unpredictable, and no matter how good an investor is, markets or investments cannot be controlled. “Therefore, understand that luck plays a role, and, if in doubt, work with an investment manager that has the right skills to consistently take you over the finish line.”

Skill #3: Master self-control

Konnikova says that successful investors realise that they can only control their own behaviour and their reactions.

“Many investors become overly emotional. This becomes their downfall. However, smart investors put check marks in place before they make important investment decisions, and realise that they can control their emotions.”

For investors who find it difficult to control their reactions to what is going on around them, Konnikova recommends practicing mindfulness.

“Investors are at the mercy of many outside influences today, even more so with the immediacy of social media and digital news, but the world is never going to quieten down for you. Learning to quiet your own mind is a more effective strategy. Mediation for example, for only 10 minutes a day, has been shown to have immense benefits on the mind and positively impact decision-making.”

Another way to master self-control is to learn from poker players, who understand that they cannot control everything, and often let the ‘cards fall where they may’.

“Investing, like poker, is a game of incomplete information. However, the best decision can only be made using the information you have at your disposal, not betting on that which you do not know. This is how you learn the art of probabilistic thinking,” concludes Konnikova.

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