So, what does it take to become a successful investor? Big income, advanced degrees, studying financial literature, or trading your way to larger account values? Turn on the tv, radio or check your news feed and it’s easy to be influenced into thinking that this is what it takes to be a successful investor. I’d like to offer a different perspective that may surprise you.
A growing income is helpful but less so if your lifestyle expenses increase at the same rate or faster. Advanced degrees may be beneficial but that doesn’t mean you won’t succumb to our own biases and blind spots. Studying financial literature and market commentary may allow you to increase your vocabulary but that doesn’t necessarily translate into the ability to implement what you’ve learned. Is what you learned even relevant to accomplishing your unique goals? Trading and investmenting to grow wealth via timing and selection is a worn-out record. Getting it right twice rarely happens, let alone repeating this behavior successfully over decades. Focusing on results and outcomes that are largely out of your control will lead to disappointment and frustration. There’s got to be a better way.
Having worked in the financial services industry for 25 years, I believe there are several principles and behaviors that all successful investors follow. These include:
- Remaining patient
- Being flexible
- Having a good temperament
- Persistence, the ability to “hang in there” and not react while witnessing extreme price movements both up and down.
- Keeping a positive spirit and outlook on tomorrow.
- Being honest and realistic with yourself regarding your savings and spending habits
- Holding necessary cash and avoiding unnecessary debt
- Understanding the difference between risk and volatility
- Verbalizing AND writing down your goals, aspirations, and the stuff that matters
All of these skills are developed over time and are not always easy to develop as habit. For most, they do not come naturally. Some individuals become successful only after they have tried other approaches or behaved in an opposite manner of what’s listed above. We aren’t all born with exceptional patience; this is a learned behavior, over time, starting at a young age. As we grow older, we learn via trial and error on how to make better financial decisions. This learning helps develop our belief systems and shapes our opinions.
Social media and news networks report daily on “the market” being up or down and the results generated in the present (now). This constant repetition of outcome and results leads our brain to believe and value results are more important than our actions. This may lead us to question how our account is doing at that very moment. Did I lose money today? How much is there? All of these questions are outcome driven. Here’s a better question; “what does a single trading day or the last seven weeks of extreme volatility have to do with becoming a successful investor?”
We’ll answer this question and examine the above traits in more detail next time.