5 Things to Know About Successful Investors
There are many common misconceptions about successful investors. Like they are always invested at the bottom and selling out at the top, or that they are always right with their investment choices and are very lucky. While being a profitable investor means getting in low and selling high, low doesn’t mean the bottom, and successful investors aren't always right.
As we take a look at some common misconceptions about successful investors, we'll also look at how unsuccessful investors go about things. Hopefully you will be able to find out where you can be better in your investing. And if you are just starting out, keep these in mind when your ready to make your next investment. Following the path of a successful investor can save you a lot of money in losses, and also help you reach your investment goals quicker.
The Truth About Successful Investors I.
Successful investors don't always get in at the bottom and out at the top. Successful investors learn to make money in between the bottom and top of a price chart. For example Warren Buffet made an investment in Apple in early 2016. Looking at a five year chart of Apple, the stock had traded at a cheaper price two years prior, but Buffett made the investment when he was ready. And this is Warren Buffett, one of the richest men in the world, he could have likely bought the stock two years prior if he felt it was a good investment. To Buffett it didn't matter that Apple wasn't trading at the bottom of its price range, or that it was early in the year, he understood that there was still money to be made in Apple and he made an investment. In January 2016 shares of Apple were trading between $94 and $105 per share, now the stock is over $170 per share.
Chart by E-Trade Pro
Unsuccessful investors let good investment opportunities go by because they feel they've missed the train and they also worry about profits they've missed out on because of selling too early. Very rarely does any investor get in at the absolute ground floor and out that the highest point. And as an investor you don't have to do that to be a successful. There is a lot of profit to be made in between the bottom and the top.
The Truth About Successful Investors II.
Successful investors are disciplined in their investment strategy. Successful investors usually think about the loss before the gain. When considering an investment, successful investors aren't focused on how much money the investment is going to make them. Instead they are focused on where to exit if their assessment or analysis is incorrect. The successful investor establishes risk parameters, they know what they will lose if the investment doesn't go their way.
Unsuccessful investors are always thinking about the profit, the reward, and the spoils. This type of thinking ruins investors, newbies and experienced investors alike. When the mind is strictly focused on the prize or the reward, there's no focus on the investment going the other way. New investors or investors who have not found success in the market need to consider the investment not going their way and having a plan for that before making the investment, so that if the investment doesn't go the way they anticipated, they can follow the plan and save themselves from big losses.
The Truth About Successful Investors III.
Successful investors look for ways to minimize the risk even more. Successful investors don't just jump into an investment, they often times watch it for a period of time after completing their analysis. What are they watching it for? To see if they can acquire the investment at a better price. By doing this the successful investor minimizes the risk even more.
Unsuccessful investors jump right in. After seeing a story on a particular company on television or reading something online, the unsuccessful investor makes their trade right away and hopes for the best. Unsuccessful investors are so terrified of missing out on potential profits that they don't wait for a better price.
The Truth About Successful Investors IV.
Successful investors don't win or profit on every investment. Successful investors understand that if they manage their risk and minimize their risk they don't have to win on every investment to be successful. Once they've done their due diligence, and they make their investment, they let the markets handle the rest.
Many people who don't invest on their own worry that they cant duplicate a level of perfection they assume investors like Warren Buffet and Carl Icahn posses. There is no need to have a perfect investment record to be a successful investor. A good strategy for selecting investments and discipline will result in profitable investments over the long term.
The Truth About Successful Investors V.
Successful investors don't take action on just anyone's investment advice. A successful investor isn't going to buy a pharmaceutical stock because their mechanic gave them a "hot tip." Successful investors question the source of the information by asking the who, where, why, and when questions. Successful investors also do their homework on any new information they receive to see if it checks out before making an investment.
Sadly unsuccessful investors buy when they hear others are buying. They invest on "hot tips" without question. Why does your mechanic feel he is an expert on pharmaceutical stocks? Why is your doctor telling you about a semiconductor that is going to change the auto industry? To make better investment choices you have to question the "hot tips." Now keep in mind, there are some great investment newsletters and blogs run by people who aren't licensed stockbrokers or financial advisors, but those people spend hours a day researching companies, so they have answers to your questions. You would surely question medical advice you received from someone who runs an investment newsletter, the same should be done with investment advice you receive from your mechanic or doctor.
So as we say goodbye to 2017 and welcome 2018, lets try to leave some of our bad investment habits behind and work on better investment habits in the new year. To be a successful investor you don't have to buy at 'A' and sell at 'Z', you can make money in between the top and the bottom. Also before buying any investment you are going to think about the worst case scenario, and what you are going to do if the investment doesn't do what you thought it would. You are going to think about the loss before profit. You are also going to practice patience, and wait for bargain prices to reduce your risk. You are not going to let one losing investment get you down and out about investing. You now understand that not every investment is a winner, and they don't all have to be winners for you to be successful. And lastly you are going to scrutinize any stock tips you get moving forward. No longer will you buy because your neighbor is buying or because your co-worker is buying. In 2018 you are going to be a more disciplined investor. You are going to mimic the actions of successful investors and leave your bad habits in the past.
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