Financial Planning

How Can You Be A Successful Investor?

Friday, June 09 2023
Source/Contribution by : NJ Publications

Investing is a risk-versus-reward game. Where some have made millions, many more have lost. What are the characteristics that differentiate a successful investor? Successful and exceptional investors, such as Warren Buffet, Benjamin Graham, and Rakesh Jhunjhunwala, exhibit critical character traits that set them apart from the crowd. Have you ever thought about what all great and successful investors share in common? What distinguishing characteristics do these investors possess that you do not?

Successful investors aren't necessarily the brightest people on the planet. Being successful in your investments may have little to do with intellectual prowess and almost everything to with your investing mindset. Let's take a look at the key personality traits you'll need to be a successful investor.

1. Patience 

Patience is an essential trait of successful investors. When they decide to invest, they do so by keeping the long-term picture in mind rather than making quick gains. Some of the investments may not perform at all for quite some time but if one is confident in the fundamentals, sooner or later, results will follow. In the long term, the prices will eventually follow and catch up with the profits. Even the corollary is true. We get tempted for a very high-performing stock where the fundamentals may not be that strong. There is a test here too. However, many of us fail the test of patience. All we need is some patience and the ability to remain calm in the face of turbulence.

2. Passion and Determination

The road to success in investments is paved and simple, yet difficult to follow. One of the key differentiating trait is consistency in what you are doing. All successful investors have their own science which they have practised over and over again and perfected over the years so that it now looks more like an art. One has to be committed and stay focused to practice your approach towards investments. Keep learning and improving your investment approach. If you are investing in say mutual funds, you may have saved a lot of time and effort in analysing stocks. However, still there is a need for you to be passionate about and focused on wealth creation and to follow your investment objectives /asset allocation regularly, with discipline.

3. Keep Emotions in Check

Sentiments are always present in the stock market. The stronger they are, the sharper is the market movement moves. Sentiments can cause a financial storm in the investment world. . That is why the risk of getting sucked into the market ‘mood’ is as dangerous as it is real. Beware of the two most powerful emotions in the market - Fear and Greed. Successful investors though can identify and differentiate the real from the hype and see beyond these emotions. They tend to get very active at such times since the market throws up many opportunities during this time and they act decisively during such irrational times and make the most of their investments. To be a successful investor, you must be emotionally neutral when it comes to winning and losing what. Winning and losing are just part of the game.

4. Understand and accept volatility

There are two way of dealing with volatility. One, the trader’s mindset which drives people to react to the volatility. Second, is the investor’s mindset where you avoid the volatility altogether. Many investors become concerned during volatile times and begin to question their long-term investment strategies. This is especially true for new investors. Experienced investors know that market volatility is unavoidable and designed to move up and down in the short term. More importantly, it is extremely difficult to time the market. Riding the volatility waves while staying afloat without getting wet is what would differentiate the successful investors from the novice ones.

5. Avoid Speculation

A speculation is a guess or a hope of something happening which is not well researched. Such speculations can be in form of tips from friends and from so called social media experts which we find floating around almost everyday. This should be taken with extra bit of caution as it can possibly be to lure unknowing investors. The opposite of speculation would be well-researched, future projections based on sound fundamentals and good assumptions. One can’t really replace speculation with such a well-researched projections. Successful investors do not engage in speculation and see it more like a gamble with a known outcome with time. Some novice investors may get excitement and fun in speculating but, it is a sure way of losing both peace of mind and money.

6. Ask Questions

Good investors understand that it’s better to ask a few additional questions than to regret or be locked into a bad investment. They are inquisitive and ensure that they understand all of the “fine print” of any investment product or asset. Any financial /investment product has its’ own positive and negative factors. Should it meet your expectations, needs, risk appetite, liquidity needs and costs, is something you must question. Before making any decision, successful investors ask questions and consult with unbiased sources. To put it another way, they educate themselves and invest only in products which they are very familiar with.

7. Listen to what is important!

Good investors keep themselves updated just enough on the major economic, geopolitical undercurrents that may impact the markets on the long run. There is no need to track daily movements of markets and listen to every little noise happening on a daily basis in the market. With experience, successful investors learn to pick up only the meaning information and avoid the rest as just noise. With information so easily available and in such a huge quantum, this is an essential skill we should master.

Bottom Line

Becoming a successful investor takes time, patience, efforts and learning. There is no shortcut to success but knowing the mindset and the characteristics of successful investors can surely help us in our journey. Surely, even we can and be as successful as our investment gurus, at least by our own standards.

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