Buffett’s Greatest Strength is Discipline, Not Genius

adamCliff Asness and Warren Buffett couldn’t be more different.

Buffett buys companies. Asness trades stocks.

Buffett is a “value” investor. Asness runs a “quant” shop, AQR Capital Management.

Buffett is known for his unassuming, down-home demeanor.

Meanwhile, Asness has rubbed more than a few people the wrong way with his uber-academic and ego-oozing personality. (He once told a female Bloomberg TV host, “You’re giving me that look that I get when I talk to women about quant stuff.” Ouch! Bad move, Cliff!)

I’m convinced, however, that both of these gentlemen, despite their differences, agree with two of my favorite pieces of investment wisdom:

Ignore the news.

And…

Stick to your game plan.

Like much of the investment wisdom I’ve picked up over the years, I learned these gems by observing what most investors do poorly.

Let’s take the case of obsessive news-watching first. I actually touched on this topic last week with my Cycle 9 Alert readers who were wondering how a couple of big news stories would affect our positions (Hint: They don’t).

Most go-it-alone investors read or watch the news… then run to their trading screens to punch in their orders. They react to whatever’s in the news cycle du jour, aiming to reduce risk when headlines are negative, vowing to not miss out on the next Google when an “undiscovered” company is touted… and so on.

But this in an awful way to invest.

The financial media exists to entertain and sell advertising. It’s not in the business of forecasting market moves or managing money. So most of the analysis you read is backward looking… anecdotal… or completely worthless blather, just filling time until the next commercial break.

Simply put…

Warren Buffett doesn’t read the news.

Cliff Asness doesn’t read the news.

And you shouldn’t, either!

I mean… I’m sure both Buffett and Asness do read the news. But they sure as anything don’t react to it!

Warren Buffett buys companies for the long haul, so he’s un-swayed by daily headlines and short-term price fluctuations.

Cliff Asness is also not influenced by the daily drivel in financial media. He runs systematic strategies – ones that have proven themselves to be profitable regardless of what’s going on in the news cycle.

You see, systematic strategies – like my own Cycle 9 Alert and recently-created Project V – can be examined with statistical rigor. This is an invaluable tool because the strategy’s performance characteristics can, essentially, take into account every unpredictable, volatility-stirring event you can imagine: geopolitical flare-ups, disappointing earnings reports, corporate scandals, surprise election results, etc.

You just can’t predict those sorts of things yourself. And by the time the story hits the papers, it’s already too late to make a move.

So any investment strategy worth its salt must be able to “absorb” the noisy impact of the news cycle, rather than react to it. The goal is to develop a systematic investment strategy that can achieve long-term profitability… despite news-cycle surprises.

But that’s only half the battle.

Once you’ve chosen your investment strategy – whether it’s Buffett’s, Asness’, mine, or your own – you have to stick to it!

This is a great piece of investment wisdom I’ve learned to live by. And interestingly, Cliff Asness commented on the value of having an undying discipline to your investment strategy.

During a Bloomberg TV interview (this one sans sexist remarks), he said:

“I used to think being great at investing long-term was about genius. Genius is still good, but more and more I think it’s about doing something reasonable, something that makes sense, and then sticking to it with incredible fortitude through the tough times.

That’s a profound statement, and an especially poignant one coming from the mouth of a self-identifying Brainiac.

Asness continued the interview by giving a hat tip to Warren Buffett’s undying discipline to his strategy, saying:

“What’s beyond human is that he stuck with it for 35 years and rarely, if ever, really retreated from it.”

Clearly, Buffett’s superhuman ability to show fortitude and discipline – particularly during tough times – paid him back in spades.

And that’s a lesson every investor would do well to learn!

Of course, that doesn’t mean you have to be a go-it-alone investor. You can follow my easy-to-implement Cycle 9 Alert strategy, where I tell you exactly what to buy, when to buy it… and, of course, when to sell. I supply the strategy… all you have to do is follow it with discipline.

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Adam
Follow me on Twitter @InvestWithAdam

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About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.