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Developing humility in investment: Six key approaches

Updated: Apr 9

When Warren Buffett advises to "exercise humility and restraint," he is offering guidance on how to approach investing and decision-making in general. Here is an explanation of each component:

Humility: In this context, humility means acknowledging the limits of one's knowledge and abilities. It is about recognizing that no matter how successful or knowledgeable a person may be, there is always more to learn and understand.

Restraint: Restraint refers to the ability to resist impulsive or emotional reactions, especially in high-stress situations. In investing, it means not succumbing to the temptation of making rash decisions based on short-term market fluctuations or emotions like fear or greed.

A famous quote from Warren Buffett, which is to exercise humility and restraint whenever it comes to investing.

By combining humility and restraint, Buffett is emphasizing the importance of staying grounded, rational, and disciplined in the world of investing.

In fact, one of the most important qualities for successful investors is humility. It may appear paradoxical, but true humility arises from recognizing that you lack it.

In this blog, we will explore six key ideas that can help foster humility in your investment approach.

1. Realistic self-evaluation

Let us draw inspiration from my reader, Zach Chen, who exemplifies humility by evaluating himself without illusions. He openly accepts that he is not exceptionally intelligent and has not been a standout investor, merely keeping pace with the market in recent years.

By seeing himself as a typical, average investor, he avoids the trap of overconfidence and unnecessary risks. His modest approach might not earn him bragging rights, but he is not seeking recognition in the first place.

2. Acknowledging the limits of knowledge

As you acquire knowledge, you become aware of how much you still do not know. Rather than patting yourself on the back for what you have learned, remain mindful of the vast amount you have left to understand.

Even seasoned professionals, like economist and portfolio manager Peter Bernstein, with 50 years of investment experience, admitted that he had not figured everything out, and that was okay. He continually questioned his beliefs and remained open to new perspectives, recognizing that he could never have all the answers.

3. Recognizing the role of luck

Even the legendary investor Warren Buffett attributes part of his success to luck. He believes he was fortunate to be born in the right time and place, which allowed him to make the most of his skills.

Acknowledging that luck plays a role in your achievements can prevent overconfidence and keep you grounded. It is crucial to remember that circumstances beyond your control contribute to your success.

Recognize the role of luck is one key approach to develop humility.

4. Embracing failure as an opportunity for growth

Rather than viewing failure as a setback, see it as a chance to learn and grow. Humble investors understand that they will not always get things right, and mistakes are an inherent part of the learning process.

When you experience setbacks, take the time to analyze what went wrong and how you can improve. Embracing failure with humility allows you to become a more resilient and insightful investor.

5. Seeking diverse perspectives and feedback

Humility in investing involves recognizing that you do not have all the answers and can benefit from the input of others.

Surround yourself with a diverse group of individuals with different perspectives, experiences, and expertise. Engaging in open discussions and seeking constructive feedback can provide valuable insights and challenge your assumptions. By remaining receptive to alternative viewpoints, you can make more informed decisions and avoid falling into the trap of excessive self-confidence.

6. Be a good listener

Being a good listener is a powerful tool for fostering humility because it involves setting aside your thoughts, judgments, and preconceived notions to truly understand and appreciate someone else's perspective.

By actively listening, you are giving someone your full attention which shows respect for their thoughts and feelings. It acknowledges their worth as a person and reinforces the idea that every individual has something valuable to contribute.

Bottom line

Cultivating humility in your investment approach can lead to more thoughtful decision-making and a deeper understanding of the complex world of finance. Embrace your limitations, learn from failures, and be open to diverse perspectives to become a more successful and grounded investor.


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