Perhaps the greatest benefit to a person who wants to invest their money in this day and age is being able to access a nearly endless amount of information, analysis, and advice about a multitude of investment types, including stocks. From T.V. resources like CNBC and Bloomberg and BNN and Cramer to web sites like The Motley Fool and Seeking Alpha, the amount of information at first can seem overwhelming. Not only are the days of having limited resources gone but also having to wait for some resources, like investing newspapers and newsletters, to arrive in the mail. You can now make investing decisions within minutes of learning about something and no longer days.
But once the dust settles and you have found a handful of favorite resources – or even only one or two – that align with your goals and levels of risk tolerance, the hardest part of investing begins: finding out whether you have the personality to become a successful investor.
What you will eventually learn, and hopefully not the hard way, is that investor success has almost everything to do with personality and almost nothing to do with having the right resources. As mentioned, resources that offer good advice are more than abundant, which means that any huge overall failures as an investor often result almost entirely from not having or developing the personality traits of a successful investor.
Let’s explain this using some analogies. A person who cannot stand the sight of blood or an open wound is not cut out to work in any of the medical professions. A person who cannot understand physics and calculus is not cut out to become an engineer. A person who does not have a natural sense of rhythm is not cut out to be a musician, especially of a rhythmic musical instrument like the drums or the bass guitar. Likewise, a person who does not have or does not develop the traits of successful investing will not be cut out to be a successful investor.
Notice the difference in what was just mentioned. Although the personality traits required to become doctors or engineers or musicians are nearly impossible to develop and are achieved by non-natural types in the rarest of instances, as though one needs to be born with those traits, the types of traits required to become a successful investor can be developed. Some investors develop them much more easily than others, but even those who start out making some really bad investing decisions have been known to turn things drastically around for the better, the author of this blog included.
What are some of the personality traits of a successful investor? Where can you find out how to develop them?
If somebody took a poll of what was considered to be the most important trait that one would absolutely need to be a successful investor, most people would likely say luck, good timing, ‘good karma’, knowing the right person, having the right resources, etc. The reality is that patience is far and away the most important trait to becoming a successful investor and really to becoming successful in any sort of endeavor, financial or otherwise. The best part is that it is not a trait that you need to be born with a large amount of but that it can be developed.
The reality is that patience is far and away the most important trait to becoming a successful investor
The proof that it can be developed stems from the fact that it is the one trait that every human throughout existence has struggled with to at least some degree. Put another way, we are all impatient to some degree. But if you can harness and tame impatience to a large enough degree in the realm of investing, you will have built a very strong foundation toward almost certainly becoming a successful investor.
So where can you find out how to develop more patience? Unfortunately, most investors only do so through making a lot of mistakes. The first mistake that beginning investors make is selling too soon. Even one of the most successful stock market investors in history made this mistake and it happened to be with the first stock that he ever purchased. Warren Buffett was content to sell his first stock, purchased at age eleven, for a small profit (after enduring a period where he would have lost if he had sold) but if he had held onto it for longer he would have eventually multiplied his money four times over. Fortunately for him it was a lesson learned, but for most investors it is a lesson that often takes too long to learn.
(The caveat: learn to hold onto your winners but come up with a plan to get rid of your losers before they get very bad, like say after losing 20 percent or if you learn some very bad news that will affect that company/industry long term.)
If you (hopefully) do not have a negative experience to go on, then hopefully reading enough other stories of both failure and success from other investors can convince you to hold on to a winning investment no matter what. But you should not just buy any stock, for example, and expect it to eventually earn you a return. A successful investor does more than just randomly picking something to invest in.
There is a misconception that a successful investor needs some sort of financial degree or some experience working in finance, but the truth is that a person from any background or profession can succeed as an investor. You just need to have a research mindset, a desire to dig deeper instead of just going on a whim or a buddy’s tip that he heard from so-and-so.
But suppose you do not have the time or think that you have the ‘financial smarts’ to understand what you are researching? Here’s a suggestion: why not pay somebody else to research potential investments for you, somebody with a proven track record?
Don’t know where to find somebody like this? Unsure if you can afford such a service?
If money is an issue, you can learn about the secrets of successful investors simply by reading about the likes of Warren Buffett for free online. However, free online resources often do not provide you with the best investment opportunities available. For less than a dollar a day (paid once annually), your absolute best option is to subscribe to an investment service that scours the best of the best stock investment opportunities available and presents them to you at least once per month.
Why not pay somebody else to research potential investments for you, somebody with a proven track record?
A fantastic starting point is to check out the free main site of The Motley Fool. If you like what you read, then consider an annual subscription to their Stock Advisor service, responsible for picking some of the most amazing winners over the past two decades including the likes of Amazon and Netflix before Wall Street even considered them. This service is also available to residents of other countries, specific to the stocks on their exchanges, for example Canadians. [TIP: Sign up to be on their e-mail list before subscribing to any service. After a few days or weeks, you might just receive an offer for a very large discount to subscribe to that service!]
The greatest benefit to services like this is not just their stock picks but also the articles that teach you how to become a better investor. In addition, their forum communities allow you to learn a huge amount from more seasoned investors, particularly from their mistakes.
The next step is to take any recommendations and only buy according to your goals and level of risk tolerance. One of Warren Buffett’s greatest nuggets of wisdom is to also only buy what you know or understand. So if you cannot live for a day without visiting a Starbucks, for example, then owning some shares in their stock is an absolute no-brainer. The same if you buy a lot online using Amazon. Or wear exclusively Nike or Under Armour apparel when you go to work out or exercise. [TIP: Current stock price does not tell the story of a company, rather its current appeal and what your research determines to be its appeal in the long term.]
In any case, do not just take a service’s advice about their top picks but ALWAYS do your own homework as well.
The Final Word
There are several more traits that could be discussed in detail. One is belief in every company that you invest in, but this results from the more you know about them, which is a result of using their products/services and/or also researching them, as was already discussed.
Another is perseverance, or not giving up on a company that you believe in, but again this ties into what you know and have researched, which hopefully produces patience that defies logic, such as when a stock’s price is being beaten up for no logical reason.
Another is having a broad, long-term vision for the industry that a company is involved in, but that also results from gaining an understanding through personal experience and/or research, which in turn produces belief, which in turn produces the perseverance necessary to have the patience to hold onto a winning company’s stock at all cost. At this point, you have a much better vision as to where a company and its industry might be headed in the long term and thus be able to decide if it is a safe place to park some of your investment money for the long term.
As you can tell, all of these traits tie together – it is really impossible to try to separate them – but patience is the core of them all and it is what ultimately results from learning more about what you are interested in investing in. To learn more about these traits, they are discussed in different forms in this blog, on sites like The Motley Fool and especially in their subscription services, and in great detail in books by the likes of Peter Lynch.
Hopefully you now have a good starting point on your journey to developing what it takes to become a successful investor.