Good morning, and a belated Happy New Year to all!

Around the low point in yesterday's stock slide, the S&P 500 was down 3.4% so far in 2021; the Nasdaq-100 index, dominated by technology stocks, was off 7%; and ARK Innovation, the exchange-traded fund run by growth-stock zealot Cathie Wood, had fallen 17%.

Some wags are already joking online that when you say it aloud, 2022 sounds like the sequel to 2020, as if it were a bad movie titled "2020 2."

I wouldn't want to relive 2020, and I'm sure you don't either. We've all had enough isolation and disease and death. We all want life to get back to normal.

Maybe, with its stumbling start to 2022, the stock market is trying to get back to normal.

After all, the huge returns of the past three years were not normal:

Between the beginning of 2019 and the end of 2021, the S&P 500 returned 100.4%, counting reinvested dividends. 

The last time U.S. stocks doubled in only three years was from 1997 through 1999 -- just before they fell by roughly 40%.

That's why, as I wrote last weekend, "I think the best investment of 2022 is likely to be discipline."

People often ask me what I think it takes to be a great investor.

I don't think it requires a graduate degree like an MBA or a specialized program like the Chartered Financial Analyst designation. It doesn't even require intellectual brilliance or an infinite capacity for outworking everybody else.

What it takes to be a great investor is the right temperament. As Ralph Waldo Emerson wrote in his essay "Experience":

Temperament is the iron wire on which the beads are strung.

The great financial analyst Benjamin Graham believed that becoming an intelligent investor depends more on "character" than on intelligence as it is conventionally defined.

I don't believe Graham ever listed all the essential qualities in the temperament of an intelligent investor. So far as I can tell, all the great investors I've been fortunate enough to meet share seven character traits.

Let's call them virtues, like the seven virtues of traditional Catholic theology. I'll write about one in each issue of the newsletter until we cover all seven.

Discipline is the greatest virtue of them all -- the one without which all the others can still fail. At its heart, discipline simply means not making it up as you go along, never flying by the seat of your pants. It means using rules, checklists, procedures and policies to make decisions.

Many investors right now are worrying whether they should bail out of stocks or waiting for their gut feelings to tell them when to buy more.

Disciplined investors don't buy anything without doing extensive research first.

Disciplined investors already have a watchlist of stocks or other assets to buy when they reach a target price that makes them cheap -- or are prepared to rebalance their portfolio if stocks fall below a predetermined allocation.

Disciplined investors also automatically review their rationale for an investment if it drops by, say, 25% -- and ask whether, if they didn't already own the asset, they would want to buy it at this new low price.

Disciplined investors detach themselves from chaos. They stay away from people who freak out over trading. They design their workday to mute the noise of the markets.

Warren Buffett moved from the buzz and bustle of New York City back to Omaha in 1956, where he began managing money in his house on a placid street.

The late global investor Sir John Templeton relocated from New York to the Bahamas where, he told me decades ago, The Wall Street Journal arrived days late. By reading the news a week later, Templeton told me, he could put it in perspective and prevent himself from over-reacting.

Next week, I'll talk about another of the seven virtues of great investors.

What do you think your own greatest virtue is an investor?  Just hit reply to this email to tell me about it.

Last week, a jury found Elizabeth Holmes, founder of the blood-testing startup Theranos, guilty on four counts of defrauding investors. (She was acquitted on four other counts.)

As my colleague Christopher Mims pointed out, this isn't going to deter venture capitalists and their institutional investors from bombarding cocky young braggarts with money.

The race to find the next Google or Genentech has gotten so intense that Silicon Valley will pour millions into just about any business that sounds "disruptive." And founders, as entrepreneurs like to call themselves nowadays, are demanding more money earlier and faster than ever.

Take the time to do your homework, and you'll miss the chance to fund my startup that's using cryptocurrency to launch a chain of solar-powered vegan smoothie shops on Mars!

Such urgency and hype are tainting American business, my colleague Laura Forman argues. When so many people want to get rich quick, that increases the odds that building lasting wealth will end up taking longer for us all.

So it strikes me as a good idea that the Securities and Exchange Commission is pushing private companies to disclose more financial information earlier.

You need only look at the WeWork fiasco to see what happens when a few people infatuated with their brilliance decide to give billions to even fewer people infatuated with their own brilliance. It's easier to fool a few people than a lot of people.

As I wrote in 2019:
     Not long ago, We’s venture-capital backers valued it at $47 billion. The proposed IPO faltered when public investors signaled they wouldn’t value the company much above $15 billion—implying the supposedly sophisticated private market had been pricing We at roughly three times what it is worth.

I added:
     ...perhaps the brilliance of the private market is overstated... Asked whether they “often make a gut decision to invest” in a fledgling company rather than relying on analysis, 44% of venture-fund executives said yes.
     Which financial metrics do they use to analyze investments? “None,” admitted 9%.... Only 11% quantitatively analyze past investment performance. A similar survey...found that [venture funds] “do not frequently use” the methods that are standard among public investors for discounting the future cash their holdings might generate.

Public markets often overvalue or undervalue companies, sometimes by a lot. But private markets all too often are like private clubs, where people dress alike and think alike and decide alike. Markets should be deep and diverse, not amen corners or echo chambers.

The only thing worse than a big crowd is a small one.

My last column of 2021 was about Wilmot Kidd, the remarkable head of Central Securities Corp., a closed-end fund whose record over the past 20 years is better than Warren Buffett's — and which has outperformed the S&P 500 for substantial margins over periods as long as a half-century.

Mr. Kidd retired on Dec. 31 (although he remains chairman of the fund's board). His success stems from two main sources: extraordinary patience and the courage to stand aside from the herd. (Hint: These are two of the seven virtues of great investors.) He has often held investments for 30 or 40 years. And you can't beat the market by mirroring it, so his portfolio is defiantly different from that of the typical fund: Central owns fewer than three dozen stocks in total and keeps more than half its assets in its top 10 holdings — many of which are owned by few, if any, other funds.

You can read about him here.

Be well and invest well,

Jason

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People who attach a degree of permanence to any particular level of wealth begin to plan and shape their futures accordingly. If the wealth disappears through no fault of their own, but purely because other investors have placed a new value on these assets, their view of the future is not only disrupted – in some cases, with a loud sucking sound, their future can vaporize entirely, along with their egos. Panic selling is a desperate gasp to keep the future from vanishing into a black hole.
—Peter L. Bernstein