The timeline
In an interview with The Motley Fool, Aswath Damodaran, Professor of Finance at NYU, made some interesting points for private investors.
Among other things, he talks about why individual investors have an advantage over institutional investors due to their ability to have a long time horizon (approx. 12 minutes into the interview).
“If you’re a portfolio manager, your time horizon is only as long-term as your shortest-term client. That’s a reality that actually gives individual investors an advantage over portfolio managers.
My advantage as an investor is I have one client, actually two, me and my spouse. […] So in a sense I control my time horizon and I can hold as long as I want. In a sense individual investors have an advantage over portfolio managers, and it’s a really big advantage.”
– Aswath Damodaran
Know thyself
Many people read books by Warren Buffett, for example, and try to invest according to his principles. The challenge is that not everyone has the same temperament and personality as Warren Buffett, which is necessary to succeed in investing the way he does.
According to Damodaran, our primary focus should be ourselves as investors. We should be aware of situations that make us uncomfortable and write them down so we can get to know ourselves better. This is a very good point because it’s easy to be drawn into following successful investors 1:1.
“The best investment philosophy is the one that fits you as a person. The person you need to understand the most to be a great investor is not Warren Buffett or Peter Lynch, it’s you. You need to know what makes you tick, what makes you comfortable, what makes you uncomfortable.
I tell investors to keep note of things that happen that make them uncomfortable in their portfolio. Keep a journal.”
– Aswath Damodaran
Watch the full interview here:
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