A lot of people invest in stock market but only a small percentage of people are considered highly successful. Today, we are going to look at the 7 traits that highly successful stock investors have in common.
A clearly defined investment strategy
Highly successful investors make investments using a clearly defined investment strategy.
A clearly defined investment strategy leaves no room for ambiguity, so they know exactly what investment opportunities they are looking for.
For example, Warren Buffett, one of the most successful investors, is only looking to buy good businesses at a discount to their intrinsic value.
A good investment strategy means nothing if you don’t have the discipline to stick to it.
Successful investors understand that very well.
For example, Warren Buffett has been following his value investing strategy for over 60 years.
And what are his results?
Consistent double digit returns over the years.
His value investing strategy has been proven to generate good returns for the long term with limited downside risk.
If he had not followed his own strategy religiously, he would not have achieved such spectacular returns.
Good investment opportunities don’t come so often.
That’s why you will need to have the patience to wait until the time is right.
Warren Buffet’s quote perfectly illustrates the point:
“I call investing the greatest business in the world … because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”
You don’t have to swing at every pitch. You just sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.
When the right opportunity comes, you jump in and take full advantage of it.
Successful investors are always avid readers.
Did you know that Warren Buffett spends almost 80% of his day reading?
Once he was asked about the key to his success, he pointed to he pointed to a stack of nearby books and said,
“Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Power of compounding
Power of compounding is sometimes said to be the eighth wonder of the world. If used well, it can dramatically increase your long term investment performance.
Successful investors, especially Warren Buffett, understand the true power of compounding and use it well to their advantage.
In fact, this is key to his massive investment success.
To put things in perspective for you, you can take a look at the table below.
With an initial investment of $10,000, you will have more than 14 millions dollars after 40 years if it grows at 20% a year.
How powerful is that!
Take control of their emotions
Successful investors don’t let their emotions take over and affect their decisions.
In the stock market, a lot of people lose money because of their greed, fear, hope or anger.
To succeed in investing, you have to stay objective when it comes to investment decisions.
Here’s a simple example.
Successful investors know stock price fluctuation in the short term is due to supply and demand. Over the long term, the stock price will come to reflect the true value of the underlying business.
That’s why they can stay put or buy even more when the price drop is not a result of a change in the business fundamentals.
On the other hand, some investors will start to get panicky and sell away their stocks out of fear when market goes against them.
Investing comes with risk.
Warren Buffett famously said,
“Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”
Why did he say this?
Because he understands how difficult it is to recover your loss.
If you lose 50% of your capital, you will need to achieve a 100% return to make back your loss.
So, successful investors only take calculated risk.
They will only invest if the return can justify the risk they are taking.
However, many people like to chase after quick money and high returns.
What they don’t know is that there is a reason why the return is abnormally high.
Because the investment is extremely risky.
Take penny stocks for example.
Some people are attracted to penny stocks because of its potentially high returns.
But, the risk they are taking with their money is even higher.
Penny stocks are generally dying companies. The huge price fluctuation which they see comes mostly from professional traders’ manipulation.
So, they are basically playing a game where they have all the odds against them. This is something a successful investor would never do.
In summary, to be successful in investing, the best way is to learn from people who have achieved the investment success you want and model after them.