Keystone Habits of Investing: Know Thyself
How taking the Enneagram personality test will make you a better investor
Not all habits are created equal. As James Clear explains, keystone habits are the pillars that keep the roof from falling down. They keep unhealthy habits at bay and make healthy habits easier to start and sustain. Common examples are sleep, exercise, etc.
What are the keystone habits of great investing?
The reason investing is endlessly fascinating to me is there’s no recipe for success. Successful investors have applied a variety of investment philosophies.
Julian Robertson does deep fundamental research and seeks to own the best companies and short the worst. Jim Simons makes thousands of high-frequency arbitrage trades in a quantitative strategy. Stanley Druckenmiller makes macro bets across asset classes. Carl Icahn buys out-of-favor businesses and pushes for change.
Jim Simons probably wouldn’t make a world-class activist, just as much as Carl Icahn wouldn’t make a world-class quant. To unlock your full potential as an investor, it’s important to invest in a way that plays to your strengths.
Are you biased against or toward action?
Do you naturally think about the next quarter or the next decade?
Under pressure, is your instinct to dig in or roll over?
Do you focus on the cards or the player?
Do you change your mind easily or is it painful?
To invest in a way that plays to your strengths - that is true to yourself - you have to know yourself. And that’s a keystone habit: continuously observing yourself and refining your investment philosophy to play to your strengths. There’s a reason “know thyself” was the first of 147 ancient Greek maxims inscribed at the Temple of Apollo.
I have one specific suggestion that worked for me: take the Enneagram personality test.1 Personality tests are controversial. Many are useless, only applying in hyper-specific circumstances. Others are too broad to be useful. Of the half-dozen or so tests I’ve taken, the Enneagram is different. It goes deeper than any other. It allows you understand your personality at its best and at its worst.
You will learn something about yourself you didn’t already know. Reflecting on it will probably change the way you invest. Let me share what I learned.
I am a Type One, “The Reformer”. From the Enneagram Institute:
Ones are conscientious and ethical, with a strong sense of right and wrong. They are teachers, crusaders, and advocates for change: always striving to improve things, but afraid of making a mistake. Well-organized, orderly, and fastidious, they try to maintain high standards, but can slip into being critical and perfectionistic. They typically have problems with resentment and impatience.
Basic Fear: Of being corrupt/evil, defective
Basic Desire: To be good, to have integrity, to be balanced
Key Motivations: Want to be right, to strive higher and improve everything, to be consistent with their ideals, to justify themselves, to be beyond criticism so as not to be condemned by anyone.
For one thing, the desire to have a fully internally consistent process - beyond criticism from myself and others - means I over-relied on mean reversion.
Type Ones have a strong sense of justice and fairness, and tend to be concerned with ‘the way things ought to be’. This kept me from seeing the world as it is instead of the way I wish it was.
Awareness is the first, but most important step. It’s easy to build correcting habits from there: checklists with questions specific to your biases, course-corrections to your investment philosophy, and so on.
To me, taking the Enneagram test, studying the results carefully and tying what I learned to my investment style was a breakthrough. I hope it can make a difference for you, too.
Shane Parrish’s podcast with Russ Hudson, co-founder of the Enneagram Institute, is an excellent starting point to better understand the test. I recommend interpreting your results in depth using Personality Types: Using the Enneagram for Self-Discovery. Focus Consulting Group has done some fascinating work on Enneagram types in investment teams in Type, Talent and Teams.
Good stuff, you're certainly right that what makes it interesting is how little we know about how to do it right - so there's always plenty to learn - and it constantly changes, so whatever worked may not quite work, plus the multiple ways to do well. A nice juicy complex adaptive system!