5 Traits All Successful Investors Share
If you’ve never invested in the stock market before, it can feel like a foreign world where you never know if you’re going to make or lose money.
However, becoming a successful investor may be easier than you think.
You may have heard the names Warren Buffett, Ray Dalio, Carl Icahn, or Bill Ackman before and while all of these individuals are very successful investors, they’re just regular people like you and me.
So what separates these successful investors from the rest of the pack?
There’s no one single answer, rather a combination of different skills and mindsets they’ve learned over the years. Here’s 5 traits that help investors become and stay successful when investing in the stock market.
Patience
In my opinion, patience is the number one trait of all successful investors.
You know the old saying “good things come to those who wait”?
It’s an old saying for a reason. It’s proved itself time and time again.
Having patience helps remove the emotional aspect from investing and will help you stay the course throughout the ups and downs of the market. If you’re investing for the long term, a 10% drop in the market won’t matter 5+ years from now but at the time, it can be difficult to see 10% of your money disappear.
However by practicing patience, you know you’re in it for the long haul and those day to day fluctuations in the stock market will become easier to withstand.
Goal setting
Settings goals before you begin investing is crucial to your success in the stock market.
If you don’t know why you’re investing, you won’t be able to make the best decisions for your situation.
Some examples of investing goals are:
- Investing for retirement
- Investing to save for a home purchase
- Investing to reach financial independence
- Investing for your child’s education
The reason it’s important to define your goals is because all of these goals have different time frames and the types of investments you choose will drastically differ depending on when you need the money.
For example, if you’re investing to get a slightly higher return on your money to save for a down payment on a home — you probably don’t want to invest in risky stocks because if the stocks go down when you’re ready to buy your home, you won’t have enough money for a down payment anymore.
However, if you’re investing for financial independence — you may want to take on a little more risk so you can reach your goal quicker and have a better chance of “beating the market”.
Being Realistic
After the surge in GameStop stock, some of the population believes that investing is more like gambling and the stock market is a place where you can experience massive returns.
While this can be partially true, it’s important to understand the difference between trading and investing.
Trading generally means that you’re actively buying and selling stocks week-to-week. Investing means that you’re buying stocks with the purpose of holding them long term and experiencing growth over time.
Now, just because investing is designed to be a long term thing doesn’t mean that you can’t experience growth immediately either.
For example, people who invested in Tesla a few years ago probably went in with the thought they were holding long term and investing in a strong company. This is still true, however Tesla has experienced massive growth over the past couple years so people who are still holding their stocks rather than selling have seen more gains than someone who bought and sold when they saw a little bit of growth.
Maybe more CEOs need to get on Twitter and start posting memes because it’s worked beautifully for Tesla so far.
Not every stock is going to perform as well as Tesla or other growth stocks have, so it’s important to be realistic when it comes to investing.
Very few investments are going to double every month and having a mindset that they will is going to hurt your chances for success in the stock market.
A general rule of thumb for investing is to aim for 8% annual returns. This is an average return of the stock market as a whole and while it’s possible to experience higher returns, don’t get down on yourself if you’re not up 150% every month.
Having an exit strategy
Knowing when to sell may be just as important as knowing which stocks to buy.
If you’re investing for the long term, you won’t have to worry about this is much as someone who is day trading - but successful investors know when it’s time to cut ties with sub-par investments.
The reason that having a proper exit strategy is important is because you may end up paying more in taxes if you start selling off investments sporadically.
For example, if you started investing back in March 2020 when the stock market dropped and you experienced a lot of growth throughout 2020 and decided to sell some stocks at the end of the year, you would’ve paid more in taxes than if you held those stocks until March 2021.
Why?
There are special taxes on investments called short term and long term capital gains.
Short term capital gains apply if you sell an investment you’ve owned for less than a year. Long term capital gains apply if you sell an investment you’ve owner for more than a year.
Short term capital gains are taxed at a much higher rate than long term capital gains and if you’re not aware of the difference, you may end up paying way more in taxes than you were expecting.
Resiliency
Unfortunately, stocks do not always go up.
In fact, understanding that temporary drops in the market are normal is key to being successful in the stock market.
If you just bought a new car for $30,000 and a week later someone offered you $10,000 for it — would you take it?
Probably not.
But that’s the exact same thing that happens when people buy a stock and then sell it when it drops in price because they don’t want to lose more money.
Also an important thing to remember is that you haven’t lost money until you decide to sell.
Again, you haven’t lost any money until you decide to sell.
If you bought a stock at $50 and the price dropped to $25, you haven’t lost any money because the stock still has the opportunity to go back up.
However if you sell, you are realizing that loss and only at this point are you now losing money.
This goes back to the previous point of knowing your goals. If you know why you’re investing, it’s easier to be resilient because you know the time frame and goals you’re trying to reach.
The Bottom Line
You don’t need millions of dollars to become or be considered a successful investor.
Success is relative.
If you’re investing consistently and working towards the goals you’ve set for yourself, that’s also considered successful. All successful investors share similar traits and if you’re able to apply them to you and your situation, you’ll begin to create your own version of success.
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This post is for educational purposes only and should not be considered financial advice.
