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Tuesday, July 20, 2010

8 Characteristics of Successful Investors

The techniques and the characteristics of the most successful investors are diverse, and there's not a guaranteed formula of success.

Nonetheless, by looking at the mindsets of certain successful investors, we can learn by following 8 of their key traits:



1. Reason

Arguably the most important characteristic. You need to justify why you hold each company in your portfolio. You must seek out high-quality stocks that are undervalued by the market, and therefore cheap.

2. Commitment

To exploit your strategy you have to do the research - and keep doing it - including surveying all financial data, online investment resources and company reports. Don't forget that "numbers have no prejudices."

3. Discipline

The research process doesn't finish once you've bought a stock.You have to obsessively follow your purchases, to make sure they were sensible. You'll need discipline, because successful investing is about running your profits and cutting your losses. The stockmarket is a rollercoaster, so you have to ride out the peaks and bottoms.

4. Flexibility

If you're going to have rules you need to be able to break them. The same stocks won't perform well in all markets.

5. Guts

The best time to buy stocks is the time of "maximum pessimism" - when everyone is selling and fleeing the markets. To do this takes bravery.

6. Open Mind

Seeking out opportunities ignored by other investors prevents prejudices coming between you and an opportunity.

7. Patience

"Unfashionable stocks" are unlikely to turn around overnight, so you need to know when to hold on.

8. Know Your Limits

This means accepting you won't be the next Warren Buffett. Professional investors spend their whole day researching companies, have analysts to help them, and can visit companies. That doesn't mean you can't stock-pick successfully as an amateur.

The best trick is to keep it simple and stick with what you know.