By Morgan Housel, NEA Columnist
If I could build a dream investor from scratch, his name would be Paul.
Paul is an optimistic apolitical sociopathic history buff with lots of hobbies who takes others' opinions more seriously than his own.
Let me tell you why he is going to kick your butt at investing.
Psychologist Essi Vidling once interviewed a serial killer. Vidling showed the killer pictures of different facial expressions and asked him to describe what the people were feeling. The murderer got most right, except pictures of people making fearful faces. "I don't know what that expression is called, but it's what people look like right before I stab them," he said.
Paul couldn't harm a fly. But a key trait of sociopaths is the ability to remain calm when others are terrified, so much that they don't even understand why other people get scared. It's also a necessity to becoming a good investor. In her book "Confessions of a Sociopath," M.E. Thomas writes:
"The thing with sociopaths is that we are largely unaffected by fear ... I am also blessed with a complete lack of sentiment ... My lack of empathy means I don't get caught up in other people's panic."
Paul is like this, too. He doesn't understand why people investing for 10 years get fearful when stocks have a bad 10 days. Recessions don't bother him. Pullbacks entertain him. He thought the flash crash was kind of funny. He doesn't care when his companies miss earnings by a penny. He's immune to that stuff, which is a big advantage over most investors.
The apolitical investor
Paul has political beliefs -- who doesn't?
But he knows that millions of equally smart people have opposite beliefs they are just as sure in. Since markets reflect the combined beliefs of millions of people, Paul knows that there is no reason to expect markets to converge on his personal beliefs, even if he is dead sure it is the truth. So he never lets his politics guide his investment decisions.
Paul knows that political moralizing is one of the most dangerous poisons your brain can come across, causing countless smart people to make dumb decisions. Even when he is bothered by political events, Paul repeats to himself in the mirror: "The market doesn't care what I think. The market doesn't care what I think."
The history buff
Paul loves history. He loves it for a specific reason: It teaches him that anything is possible at any time, no matter how far-fetched it sounds. "One damned thing after another," a historian once described his field.
Paul knows that some people read history for clues on what might happen next, but history's biggest lesson is that nobody has any idea, ever.
When people say oil prices can only go up, or have to fall, Paul knows history isn't on their side -- either could occur. He knows that when people say China owns the next century, or that America's best days are behind it, history says either could be wrong.
History makes Paul humble and prevents him from taking forecasts too seriously.
Paul likes golf. He enjoys cooking. He reads on the beach. He has a day job that takes up most of his time.
Paul loves investing, but he doesn't have time to worry about whether Apple is going to miss earnings, or if fourth-quarter GDP will come in lower than expected. He's too busy for that stuff.
And he likes it that way. He knows investing is mostly a waiting game, and he has plenty of hobbies to keep him busy while he waits. His ignorance of trivial stuff has saved him thousands of dollars and countless time.
The open-minded thinker
Paul knows he's just one of 7 billion people in the world, and that his own life experiences are a tiny fraction of what's to be learned out there.
He knows that everyone wants to think they are right, and that people will jump through hoops to defend their beliefs. He also knows this is dangerous, because it prevents people from learning. Paul knows that everyone has at least one firm, diehard belief that is totally wrong, and this scares him.
Paul is insanely curious about what other people think. He's more interested in what other people think than he is in sharing his own views. He doesn't take everyone seriously -- he knows the world is full of idiots -- but he knows the only way he can improve is if he questions what he knows and opens his mind to what others think.
The realistic optimist
Paul knows there's a lot of bad stuff in this world. Crime. War. Hunger. Poverty. Injustice. Disease. Politicians.
All of these things bother Paul. But only to a point. Because he knows that despite the wrongs of the world, more people wake up every morning wanting to do good than try to do harm. And he knows that despite a constant barrage of problems, the good group will eventually win out in the long run. That's why things tend to get better for almost everyone.
Paul doesn't get caught up in doom loops, refusing to invest today because he's worried about future budget deficits, or future inflation, or how his grandkids will pay for Social Security. Optimists get heckled as oblivious goofs from time to time, but Paul knows the odds are overwhelmingly in their favor over the long haul.
I'm trying to be more like Paul.