Characteristics of a good stock investor
By Peter Wambu
Every stock investor sets out with the goal of trying to beat the market. A few even dare to think that they can become the next Warren Buffett. Unfortunately, the harsh reality is that few manage to even come close to this goal. Nevertheless, you can improve your chances of success. There is no sure-fire strategy to riches, but by studying successful investors, we can pick up a few tips to help improve our chances.
Have a strategy
Arguably the most important trait of great investors is the ability to set out with, and stick to, a clear strategy. They understand that you cannot achieve anything if you do not have a method and the discipline to follow it to the letter. It does not matter which approach you choose, whether it be growth, value, income, deep value, distressed investing, momentum investing or day trading, whichever route you go down, it is key that you stick with the strategy. Almost all of the world’s most successful investors have all stuck with one strategy throughout both the good times and the bad.
Never stop learning
Research has shown that for anyone to truly become an expert at something, it takes 10,000 hours of practice. The only way to reach this goal is to continually seek out new information. Investors should never stop learning and they should always seek to improve existing skills. As Warren Buffett’s partner, Charlie Munger, says: “If you stop learning, the world rushes right by you.”
Ask what could go wrong, not what could go right
Most investors invest with the wrong frame of mind. Indeed, when assessing an investment, most will ask “What’s the upside here?” Or “How much can I make?” Few investors or traders ever give attention to losing, yet losing is the other side of the investing coin. Before investing in any stock, the first question should always be “How much can I lose?” Of course, no one plans to fail. But failure should be part of the plan. That way, it will not come as a shock. It will find you prepared.
Know your strengths
Everyone has their own strengths and weakness. Each investor has a company or sector that he understands more than most. It is important that you invest inside your circle of competence. This circle defines your investment niche; investments you understand, which essentially is your competitive advantage vis-a-vis the market. Circle of competence limits your investment to what you know and prevents you from straying into the risky unknown. There is no faster way to lose money than investing in something you do not understand. If you cannot figure out what a company does or how it makes money, it is often best to stay away, no matter how lucrative the opportunity might be. By viewing the investment world through the lens of his investment criteria, a great investor literally only sees those investments he can understand.
Admit your mistakes
At one point in time, every investor has made a mistake. It is just part of the business. Successful people focus on avoiding mistakes and correcting them the moment they become evident. Sometimes, success can come from focusing solely on avoiding mistakes. The best way to act on a mistake it to accept it, learn from it and move on.
The writer is the author: The Ultimate Framework for Success in Shares
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