Some time ago I wrote about sand as a vital property for investors. That sparked some email exchanges with younger readers who are earlier in their careers than financial analysts and money managers.

In general, the discussions revolved around the skills that a successful analyst and investor must have. And while a passion for the markets and determination are key traits, I believe others are more fundamental.

First of all, there are cognitive skills, that is, the ability to think analytically and logically. Investing is a numbers game that requires analysts to make sense of mountains of data at all levels, whether it’s about the economy and markets as a whole or about individual stocks and bonds. From my point of view, without good cognitive skills, an analyst does not have the foundation to succeed.

TO study by David Gill and Victoria L. Prowse examined the traits and abilities of people in childhood and how they influence success in different subjects at school, the type of jobs students ultimately end up in, and how much income they earn.

It won’t surprise you that kids with high intelligence and strong cognitive skills are more likely to excel in math, science, and English classes than in arts, sports, and practical classes like grocery shopping. (Yes, those clichés are true, at least statistically.)

And this math and science training boosts their innate cognitive abilities and leads them to choose jobs that match their talents. As young adults, people with these characteristics are more likely to rise to managerial and technical positions and professions such as medicine, teaching, engineering, finance, and law. As a result, they also have higher lifetime earnings, since managerial and technical careers, as well as the professions, tend to pay better.

So if you lack analytical and cognitive skills, you probably won’t be successful as an investor. But most of those who work in finance as analysts or money managers possess these traits. Which begs the question: What distinguishes good investors from average?

I think it boils down to two traits.

Mosaic of capitalism for all

People who focus on individual stocks and bonds tend to do better when they’re diligent. Working through a financial statement with all its footnotes and asking probing questions on earnings calls are no easy tasks. And the more meticulous analysts are, the more likely they are to find fault with the story management is trying to tell. Let’s face it, no CEO is going to tell investors that they think the company is about to go bankrupt or is floundering. The job of investors and analysts is to see if their knight in shining armor really is as brilliant as it seems.

In the most extreme cases, diligent analysis, critical thinking, and challenging management can uncover fraud. Take the case of Enron 20 years ago. The company fooled most analysts into thinking that everything was going well. However, some questioned the company’s accounting practices and use of special purpose vehicles (SPVs). This poll led some to conclude that Enron was a fraud. These are the analysts you want to talk to because they add value and will help you perform better. The rest of the package you just buy in the hype you can safely ignore. They will not make you money as an investor.

Beyond these analysts are generalist fund managers, strategists and asset allocators who don’t dig into company financials. For these investors, diligence is less important and less differentiating. You can literally outsource that trait to research analysts covering individual stocks.

But those in this cohort need another trait, one that makes the difference between being average and staying ahead: creativity. And I don’t mean creativity in the sense of painting or acting in a troupe of amateur actors. Those are fun hobbies, but the kind of creativity that sets you apart as an investor is the ability to see data and markets differently than others and piece together individual pieces of information to form novel ideas.

In particular, I mean being able to navigate a noisy and uncertain environment with the necessary flexibility and conviction. Howard Marks, CFA, put it best when he said: “You can’t do the same things as everyone else and expect to outdo yourself.Unfortunately, too many analysts, strategists and fund managers do what everyone else does. The amount of true creativity in the investing world is very low, in my experience. Most people are just playing around with existing investment approaches, adding a few extra parameters here and there. That’s not creativity that gives you extra performance.

Additional performance is created by doing what others don’t and truly differentiating yourself. What does that mean in practice? It is impossible to say. There are so many different ways and I won’t tell you how I try to do it because that would take away my advantage. Then all you have to do is become a client of my company, read my notes and schedule a few meetings with me. If you haven’t already.

Investment Management Slide: A Science to Teach or an Art to Learn?

But back to the study, Gill and Prowse show the clear advantages that being creative can have in life. Creative people are more likely to end up in the C-suite and in high-paying technical positions. The effect for creativity is about one-fifth as strong as that for cognitive abilities, but it is a compound effect.

The message is clear: to succeed in investing, cognitive skills provide the foundation, but creativity gives you that extra something that sets you apart.

To learn more from Joachim Klement, CFA, don’t miss 7 mistakes every investor makes (and how to avoid them)and Risk profile and toleranceand sign up for your Klement on investment comment.

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All messages are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/Andrei Metelev

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Joachim Klement, CFA

Joachim Klement, CFA, is a trustee of the CFA Institute Research Foundation and provides regular feedback on Klement on investment. Previously, he was CIO at Wellershoff & Partners Ltd. and, prior to that, head of the strategic research team at UBS Wealth Management and head of equity strategy at UBS Wealth Management. Klement studied mathematics and physics at the Swiss Federal Institute of Technology (ETH), Zurich, Switzerland, and Madrid, Spain, graduating with a master’s degree in mathematics. In addition, he has a master’s degree in economics and finance.

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