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“The individual investor should act consistently as an investor and not as a speculator.” — Benjamin Graham
“An investment in knowledge pays the best interest.” — Benjamin Franklin
“Don’t look for the needle in the haystack. Just buy the haystack!” — John Bogle
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Successful investors use different strategies, but the best ones tend to share a common set of traits. Here are the ones that matter most:
- Patience
The ability to wait is one of the biggest advantages in investing.
We live in a world that is currently tilted towards instant gratification. Patience equals delayed gratification, and that doesn’t fit most people’s mindset.
Wealth is usually built over years or decades, not months. Successful investors avoid chasing quick profits and let compounding work. The effects of compounding are not linear. This means that the greatest benefits of compounding occur after many years.
My children are now in their 40s and are starting to understand the power and benefit of compounding. But it has taken more than 20 years for the effects of compounding to become evident to them. Compounding is not the fastest way to wealth, but a true path to wealth if followed for a lifetime. For more information about compounding, read or listen to COMPOUNDING MAGIC: HARNESSING THE EIGHTH WONDER IN YOUR FINANCES.
I consider Warren Buffett to be a reasonably good investor. Here are a couple of his famous quotes about the stock market, success, and patience:
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” — Warren Buffett
Here is a quote from Charlie Munger, Warren Buffett’s long-time partner and vice-chairman of Berkshire Hathaway:
”The big money is not in the buying and selling, but in the waiting.” — Charlie Munger
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- Emotional Discipline
Markets go up and down. Successful investors don’t panic during declines or become overconfident in booms. They avoid emotional decisions driven by fear or greed.
This is one of the easiest things to speak about, but one of the hardest to apply. Recency bias fools investors into thinking they are great investors, rather than lucky investors propelled by favorable tailwinds. The same recency bias also fools investors into thinking the sky is falling, that the stock market will never recover, and that they need to sell at the bottom!
I think emotional intelligence is also very important. Once investors know what they don’t know, they become more humble and better investors.
In more than fifty years of investing, I’ve experienced multiple stock market cycles. The feeling is great at the top of a bull market cycle, but gut-wrenching at the bottom of a bear market cycle. What has always buoyed me is that I was working and able to purchase more stocks periodically. This meant that when the market was in decline, I was buying everything on sale. This buoyed my faltering emotional state.
I am no longer actively investing periodically, and I have turned off the automatic reinvestment of dividends and capital gains in all my investment accounts.
Even after navigating multiple stock market cycles, I feel the next big drawdown will test my emotional discipline!
“Investing requires qualities of temperament way more than it requires qualities of intellect.” — Warren Buffett
“The greatest Enemies of the Equity investor are Expenses and Emotions.” — John Bogle
“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.” — Peter Lynch
Key question they ask:
“Has the investment changed, or just the price?”
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- Long-Term Thinking
Strong investors focus on long-term value rather than short-term headlines. They understand that temporary volatility is normal.
“Don’t just do something; stand there.” -John Bogle
One of the best things about investing is also one of the worst things!
Before the rise of computer technology, investors would look up yesterday’s closing price in the Wall Street Journal. With current computer technology, access to Information and Data is almost unlimited. This information can be accessed from just about anywhere in the world, 24 hours a day. This is a blessing, but it’s also a curse. Having access to information continuously can create a misconception of control.
Profits from roulette tables went up exponentially after an Information board was erected. When players could see the prior sequence of winning numbers, it created a sense of knowledge. Players felt that by looking at the previous numbers, they could forecast future winning numbers.
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- Humility
Good investors know they will be wrong sometimes. Humility helps them admit mistakes, cut losses when necessary, and keep learning.
A common investing danger is overconfidence. When purchasing stock, is the information I possess more comprehensive than that of Wall Street traders? Normally, the answer is no, which means I have less information and am overconfident.
Investors tend to become overconfident in their investing ability when favorable market conditions occur. Overconfidence has risen in recent years as the market trajectory has been upward.
Humility helps investors to understand that they are not brilliant, only fortunate to participate in favorable market conditions.
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- Curiosity and Continuous Learning
Markets, industries, tax laws, and economies change. Successful investors read, ask questions, and keep learning.
In the stock market, if you’re not moving forward, you’re falling behind. Any investor who is still waiting for the next day’s Wall Street Journal to check closing prices of the previous day’s market has seriously and fatally fallen behind in their knowledge and education. The problem today is not the lack of information and educational platforms, but the overabundance of educational platforms. No one person can keep up with the massive amounts of new information generated Daily.
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- Independent Thinking
They listen to others but don’t blindly follow crowds or financial TV personalities. Many good investment decisions feel uncomfortable at the time because they go against popular opinion.
We have evolved as human beings to feel safer and more comfortable in a group. The concept of herd mentality feels right because of these evolutionary concepts. Our earliest ancestors found that those who stuck together were safer and lived longer.
Investors have transferred this concept to the stock market. Investors feel that moving in lockstep with the herd is the safe and comfortable thing to do. The problem is that the herd is seldom correct. History indicates that investors sell when the market is low and then buy when the market is high.
This is the easiest way to lose money or to ensure you get the lowest possible return. Having a plan and following that plan in both good and bad times will mitigate herd mentality and increase returns.
“Buy at the point of maximum pessimism; sell at the point of maximum optimism.” — Sir John Templeton
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham
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- Risk Awareness
Great investors focus as much on protecting capital as on growing it. Warren Buffett famously stated he had only two investing rules. The first rule is never to lose money. The second rule is to refer to the first rule. Losing money, in addition to losing the principal, also involves opportunity cost. You’re losing all of the dividends and capital gains growth that that money would have generated over many years.
Most conscientious investors have portfolios that are risk-adjusted for stock market shocks. Having a greater return is not necessarily better if it is more volatile and riskier. Extremely volatile stocks in portfolios have the potential to generate greater returns, but also suffer greater losses.
“Successful investing is about managing risk, not avoiding it.” — Benjamin Graham
“Risk comes from not knowing what you’re doing.” — Warren Buffett
They ask:
What could go wrong?
How much can I afford to lose?
Am I properly diversified?
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- Consistency
Successful investing often comes from repeatedly doing simple things well:
Investing regularly
Staying diversified
Rebalancing when needed
Avoiding emotional trades
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- Realistic Expectations
Good investors avoid “get-rich-quick” thinking. Historically, diversified stock portfolios have produced good long-term returns, but not without bad years along the way.
One of the best examples is the period described as the Lost Decade. The “lost decade” in the stock market typically refers to the period from 1999 to 2009, when the S&P 500 generated a negative total return of roughly -1% annually. Adjusted for inflation, a buy-and-hold index investor lost significant buying power due to the dot-com crash and the 2008 Financial Crisis.
Historically, the stock market, measured by the S&P 500 Index, delivers an average annualized rolling 10-year return of approximately 10% to 11% before inflation – Crestmont Research, SoFi. Over 93% of all rolling 10-year periods result in positive gains -Winthrop Wealth.
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- Self-Control
This may be the most underrated trait. Avoiding unnecessary spending, excessive trading, or constantly changing strategies often matters more than picking the perfect investment.
Self-control is also one of the hardest behaviors to implement. When the market declines, the tendency is to do something, even if it’s wrong!
The trait speaks to the market axiom: “time in the market is more important than timing the market.”
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Final Thoughts
The best investors are often:
Patient + disciplined + humble + long-term focused + emotionally steady
Interestingly, many successful investors are comfortable being underestimated or looking “wrong” for a while before being proven right—because they care more about results than recognition. For more information on being underestimated, read or listen to THE VALUE OF BEING UNDERESTIMATED.
For someone investing for retirement or preserving wealth later in life, discipline, patience, risk awareness, and emotional steadiness are necessary traits.
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