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How to Be a Great Investor According to Buffett, Munger and Friends

For generations, investors have sought to develop ever better understandings of how the stock market works in hopes of being able to beat it - or rather, beat the other investors operating in the stock market.

The desire to become a better investor has spawned a whole industry of knowledge-sharing, replete with how-to guides, biographies, trading systems, philosophical musings and much more besides. With so much material available, it can often be a daunting task for the novice, or even journeyman, to find the information and insight that can genuinely help them improve as investors.

For investors hoping to glean insights with limited filler, it often pays to read what some of the greatest practitioners have said. Real experience tends to make their insights far more useful in practice than any textbook or cookiecutter how-to guide could be. Indeed, it is those who are already great investors from whom we are most likely to gain actionable knowledge.

Embrace your nature

Charlie Munger (Trades, Portfolio) has played an instrumental role in building Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) into what it is today. Working at Warren Buffett (Trades, Portfolio)'s side for decades, Munger is owed considerable credit for transforming Berkshire from a struggling textile business into a value investing behemoth.

Munger is well known for his witty aphorisms and insightful observations with regard to the stock market. Unsurprisingly, he has had ample opportunity to reflect on what it takes to become a great investor:

"How do you learn to be a great investor? First of all, you have to understand your own nature. Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable and some losses are inevitable, you might be wise to utilize a very conservative pattern of investment and savings all your life. So you have to adapt your strategy to your own nature and your own talents. I don't think there's a one size fits all investment strategy."

Munger's sage advice is that investors should always start from a position of self-knowledge. According to him, this foundation must be laid before more esoteric issues of strategy can be broached.

Cultivate your own style

Once you know yourself, you can begin to learn the best way for you to approach investing. According to Chris Davis (Trades, Portfolio), founder and CEO of Davis Funds and Davis Advisors, personalizing one's investing style is crucial to long-term success:

"My father had this saying, he said, 'Investing is like painting, there are all different styles.' It's one thing to imitate someone's style when you are learning, just like a painter would go to a museum and copy great works, but at some point, they find what resonates with them."

The path to developing a winning investment philosophy and strategy often begins with emulation of other investors. However, while this is a solid starting pointing, true outperformance can only be achieved by developing a unique style that fits your skillset, psychological profile and passions.

Strive to think differently

Once you have cultivated sufficient self-knowledge and designed parameters of an investing style that suits your idiosyncratic mental, psychological and financial qualities, you must then be willing to act against the grain. According to mental models guru Share Parrish, being contrarian is the only way to outperform the crowd:

"You have to be willing to look like an idiot in the short run to outperform in the long run. While copying what others already do helps achieve average results quickly, common approaches never outperform...What ends as better, starts as different."

Understanding and (perhaps, more importantly) developing comfort with what it takes to go against the grain is crucial. Following the "common knowledge" of the market will, at best, allow you to do as well as everyone else. Oftentimes, it can mean doing considerably worse.

Be patient

The importance of the psychological grit that Parrish has described cannot be overstated. Much like hitting in baseball, patience is essential to investing success. According to Buffett, the famed Oracle of Omaha, the key is to wait for the right opportunity, or the right pitch, before taking action, which often means ignoring the crowd and public echo-chamber:

"The trick in investing is to watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!,' ignore them...Defining what your game is -- where you're going to have an edge -- is enormously important."

Once you have a philosophy and strategy that aligns with your own psychology, reflects your unique characteristics and style and allows you to move independently (and often contrarian-wise), then you are ready to hunt for opportunities. But opportunities and bargains do not appear of their own accord. Patience is absolutely critical. Wait for the right opportunities and you will not regret your actions when they do come at last.

Disclosure: No positions.

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This article first appeared on GuruFocus.