Over the past 20 years, I’ve spent a lot of time studying the stock market, investing and learning. One of the things I’ve come to learn in that time? The best investors all share five character traits: talent, intellect, knowledge, common sense and a bias toward action.
Many, if not all, of these traits can be learned and developed. Let’s look at how to do that, and, while we’re at it, explore why these characteristics matter.
1. Investing Talent
Being able to pick winning stocks is critical to your success as an investor. That’s a given. The question, then, is how do you do that? It starts with developing your talent.
In my opinion, the best way to hone your talent is by listening to financial analysts and reading financial news. That’s because, the more you listen, and the more you read, the more you sharpen your skills and talent. I spend two to three hours each day watching CNBC and Fox Business News. I listen to analysts, like Jim Cramer, and their guests. I spend a lot of time reading financial news on sites like CNBC and MarketWatch. I also regularly review the information I get from financial news subscription services, like Action Alerts PLUS.
The point is I continually hone my investing talents by spending time every single day taking in financial information. All the best investors do the same.
2. Strong Intellect
The sharpest investors also have a strong intellect. However, just like with talent, intellect can be strengthened. How? By working as hard as you can to increase your understanding of the stock market and investing.
Luckily, you can develop your intellect the same way you do your talent: by listening to and reading financial news. If you do that, you’ll hear people talking about their investments. You’ll get a glimpse into why they’re investing in a particular company, and you’ll hear them discuss economic trends.
I can’t overstate the importance of devoting yourself to spending time each day taking in financial news. More than almost anything else, it can help build your knowledge and sharpen your intellect.
3. Market Knowledge
Growing and maintaining market knowledge is also critical if you want to be a successful investor. Along with keeping up-to-date on financial news, you can also follow current events. That’s not all: You can also look for which companies are dominating the market and watch the actions of those market leaders. Finally, I highly suggest keeping an eye on CEO interviews.
Consistently taking all of these actions will help you educate yourself about what might affect the market. It will also ensure you stay poised to seize opportunities that might arise and help you avoid making costly mistakes.
4. Common Sense
Common sense is just as important as talent, intellect and knowledge. I developed my common sense from being at the Sharper Image for so many years. I saw which products would sell and which ones wouldn’t. We were a public company, too, which meant I had analyst interviews. I listened to them, and I learned how analysts think and what questions they ask.
However, even if you don’t have that kind of experience, you can still use and develop your common sense. You can focus on companies that make sense to you—ones with a great product or a great strategy. At the end of the day, no matter who you are or what your background is, you are a consumer. You know what products and companies you like. That means you can use common sense to buy what you know, buy what you understand and ultimately, buy what you love.
5. A Bias Toward Action
The last trait—a bias toward action—is, perhaps, the most important. It’s this trait that keeps you disciplined about nibbling in, even when the stock market is going down.
What do I mean by nibbling in? Nibbling in means taking some percentage of your investable assets (e.g., 3%, 5% or some other number) and buying up to that amount today. Then, you wait—wait for a few days or a week, depending on your appetite for risk. Then, take that percentage and nibble in again.
The idea is that, on any given day, you have something left in your cash pile to invest. Ultimately, by forcing yourself to nibble in, you buy some before the bottom, some at the bottom, and some after the bottom. In my experience, when you put all that together, you usually have a terrific investment.
Of course, being disciplined about nibbling in and maintaining a bias toward action means you have to be able to control your emotions. That’s what makes this trait such a defining characteristic of the best investors. Most people can’t handle the emotional distress of buying into a declining market. However, I believe that’s exactly what we should be doing.
Hone These Traits To Find Success
The standard winning formula in the stock market is “buy low, sell high.” To do that, though, you have to have steely nerves. You can’t get scared and sell at the bottom. Instead, you have to be willing to nibble in at the bottom, which is why you need a bias toward action.
On top of that, you have to be able to pick the right stocks. That’s where talent, intellect, knowledge and common sense come in. Of course, if you can’t control your emotions, and you get fearful and sell every time the market drops, all that talent, knowledge, intellect and common sense go out the window.
So, go slow. Give yourself a few years to build up these muscles and hone these traits. Read, listen to analysts, study current events, and practice nibbling in, even when the market goes down.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.