Warren Buffett has said it plainly enough times that we should have all memorized it by now: investing is not a game where the person with the 160 IQ beats the person with the 130 IQ. Temperament wins. And yet almost no one actually builds for it.
Warren Buffett has said it plainly enough times that we should have all memorized it by now: "Investing is not a game where the person with the 160 IQ beats the person with the 130 IQ. Temperament wins." And yet almost no one actually builds for it.
I have been building and investing in companies for over two decades. I have watched brilliant people make catastrophic decisions under pressure. I have watched people with average intellect build extraordinary things because they were simply unshakeable. The pattern is consistent enough that I no longer treat it as an observation — I treat it as a law.
The Intelligence Trap
The venture capital industry has a fetish for intelligence. We love the MIT dropout, the Stanford PhD, the person who can walk into a room and immediately demonstrate that they are the smartest person in it. And there is nothing wrong with intelligence. But intelligence without temperament is a liability dressed up as an asset.
Howard Marks, who has spent decades at Oaktree Capital studying what separates great investors from merely smart ones, puts it this way in his essential memo *The Most Important Thing*: "The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological." The market does not reward the person who knows the most. It rewards the person who can act rationally when everyone around them is not.
This is the temperament premium. It is the excess return available to anyone willing to do the psychological work that most people avoid.
What Temperament Actually Means
Temperament in investing is not about being calm. It is not about being emotionally flat or detached. The best investors I know feel everything — the fear when a position goes against them, the excitement when a thesis plays out, the doubt that creeps in during the long middle of any investment cycle. What separates them is not the absence of those feelings. It is the refusal to let those feelings drive the decision.
Charlie Munger, Buffett's longtime partner at Berkshire Hathaway, built an entire framework around this idea — what he called the "psychology of human misjudgment." His insight was that the human brain is wired with systematic biases that were useful on the savanna but are actively destructive in markets. Loss aversion. Recency bias. Social proof. Commitment and consistency bias. These are not character flaws. They are features of human cognition. But in investing, they are the enemy.
Munger's solution was to build what he called a "latticework of mental models" — a set of frameworks drawn from psychology, economics, physics, and biology that could be applied to any decision. The goal was not to eliminate emotion but to create enough cognitive distance from it that reason could operate.
The Operator's Version
I think about temperament differently as an operator than I do as an investor, but the underlying principle is the same. When you are building a company, there are moments — and every founder knows exactly what I am talking about — when the emotional weight of the situation makes rational decision-making almost impossible. A key hire leaves. A major customer churns. A competitor raises a hundred million dollars and announces they are coming directly for your market.
In those moments, the temptation is to react. To do something. To demonstrate to your team, your investors, and yourself that you are in control. But the best founders I have worked with do something different. They pause. They separate the facts from the story they are telling themselves about the facts. And then they act from clarity rather than fear.
This is not a natural skill. It is a practiced one. And the research backs this up. A 2023 study published in the *Journal of Behavioral Finance* found that investors who scored higher on measures of emotional regulation generated significantly better risk-adjusted returns over five-year periods than those who scored lower — regardless of their analytical ability or years of experience.
Building the Muscle
The question I get asked most often by founders and early investors is: how do you build temperament? The honest answer is that you build it the same way you build any muscle — through deliberate, repeated exposure to the conditions that test it.
For me, the practice has three components. First, pre-mortems. Before any significant decision — an investment, a hire, a strategic pivot — I force myself to imagine the worst-case scenario in vivid detail. Not to become paralyzed by it, but to remove its power. Fear of the unknown is almost always worse than the known thing itself. When you have already walked through the failure in your mind, the actual failure loses much of its ability to hijack your thinking.
Second, written decision logs. Every significant decision gets written down before it is made, along with the reasoning behind it and the conditions under which I would reverse it. This serves two purposes. It forces clarity of thought in the moment. And it creates an honest record that I can review later — not to beat myself up, but to understand my own patterns of error.
Third, and most importantly: the company of people who will tell you the truth. The greatest threat to good temperament is the echo chamber. Surround yourself with people who agree with you, and you will eventually mistake consensus for correctness. The best investors and operators I know actively cultivate relationships with people who will push back, challenge the thesis, and refuse to validate the narrative.
The Long Game
Buffett has held some of his positions for decades. Not because he is stubborn, but because he has the temperament to sit with conviction through the noise. In a world that rewards speed, that kind of patience looks almost irrational. But the numbers tell a different story.
Dalbar's annual *Quantitative Analysis of Investor Behavior* has tracked the gap between market returns and actual investor returns for over thirty years. The gap is consistently enormous — not because investors pick bad stocks, but because they buy and sell at the wrong times. They let temperament work against them instead of for them.
The temperament premium is real. It is available to anyone. And it costs nothing except the willingness to do the hard internal work that most people would rather avoid.
That, in the end, is why it persists.
Richard Smullen is the co-founder of Keller Winston and the founder of Pypestream, Inc. He writes about investing, building, and the intersection of the two.
