In every field, there are some common characteristics amongst the rich and successful. The 5 characteristics you need:
1. A Well Defined Strategy:
The successful trader knows that trades can go in the opposite direction too. So he prepares himself even before entering into the trade. On the other hand, the average trader starts calculating his profit before punching the buy order. If you have an objective strategy with well-defined entry, exit and stop loss, then 70% of the battle is already won. This will replace emotional decisions based on fear and greed with logical decisions.
“Many people rush into the game of investing thinking they are predators. They later realize they themselves are the prey. Only the preys with a defined exit strategy will escape, the rest will be slaughtered by the real investors” – Ajaero Tony Martins
2. A Proactive Learner:
The successful investor always says “thank you for sharing”. The average investor will always say “I know it”. Real investments don’t happen in stocks, but rather in knowledge, and the successful investor understands this. This class of investors is willing to pay for knowledge, it may be books, journals or magazines ranging from investing to personal development. They are always willing to attend upcoming seminars and courses.
“An Investment in knowledge always pays the best interest” – Benjamin Franklin
Patience is the name of the game. The successful investor holds on to his shares even in times of high volatility and gloom. He knows that when the dust settles the companies he has been holding will emerge out as the winners. Patience is not just needed to hold stocks but also to pick the right stocks at right valuation and at the right time. The successful investor waits for the best trades and never settles to go for mediocre trades. The average investor is driven by his emotions and even takes up sub-par trades just to get that satisfaction of trading.
“The stock market is a device for transferring money from the impatient to the patient” – Warren Buffett
4. Persistence/Conviction :
Sticking to your investment strategy needs a great degree of persistence, irrespective of whether you are winning or losing. The average investor jumps between different strategies and becomes directionless in search of quick money. That’s why they end up losing money. Persistence is an outcome of deep research, which brings in conviction in their own strategies.
“A river cuts through a rock not because of its power, but through its persistence” – John Di Lemme
5. More Focus on Risk Than Return:
Investing is all about balancing these two terms – Risk and return. The successful investor understands that he cannot control his return, but he can control his risk. He makes sure to keep it under control and rebalance it now and then. Risk is to be managed not avoided. A major difference between successful and average investor is that the successful investor always focuses on risk. The average investor always looks at return. Ever heard of the word “Hedge”?
“If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business” – Gary Cohn