One of my favorite reads of the year is Berkshire Hathaway's annual report. A few hours ago it was published and, as usual, it was filled with insight and humor. But one of the most interesting discussions this year dealt with the challenge of finding an investor to succeed Mr. Buffett. In looking for such a person, he listed as vital qualities for investment success to be "independent thinking, emotional stability and a keen understanding of both human and institutional behavior." While the thinking and understanding components are clearly vital, I found it significant that "emotional stability" got equal billing.
In reading about Twelve Step programs, the eleventh step deals with prayer and meditation. The step's discussion on emotions relates as well to investing as addictive behaviors. In the primary text (Big Book p.88), he writes "as we go through the day, we pause..we are then in much less danger of excitement, fear, anger, worry, self-pity or foolish decisions." Note the progression. It is similar to watching a stock bubble with "excitement" and pop and finally get sold at "foolish" levels. I think Mr. Buffett has once again hit it; like recovery itself, investing is "simple, but not easy" (Big Book p.14).
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