23 Traits of Successful Investors
Adopt the habits of successful investors and you too could call yourself one after a while. We have 23 to get you started.
The finance world's top investors all used different approaches to make their millions (or in some cases, billions) but at their core, their philosophies are ultimately the same.
In this article, we're going to teach you their secrets. Adopt some these 23 habits and you'll be on the right track to becoming a successful investor in your own right.
- They clearly define their goals.
Just like you don't go into a road trip without identifying some destinations to see, you can't go into a venture without setting some goals.
And don't be afraid to get specific. Winning investors identify exactly what they want to achieve and the steps they need to take to do it.
Don't believe that that simply writing down goals will work?
In a group of Harvard MBA graduate students, those who wrote down their goals ended up making 10 times as much as their peers a decade later.
So before you play the investing game, have clear goals and write them down even.
- They don't shy away from risk.
Investing naturally entails a certain amount of risk. There's no such thing as guaranteed success, and so you have to be willing to go out on a limb.
So what makes someone a risk taker?
Unfortunately, according to researchers in London, the make-up of your brain largely determines whether you're comfortable taking a gamble financially, so your risk tolerance is not completely in your control.
But luckily for you, this is something you can overcome. If you're not naturally a risk taker, learn to do the things that make you uncomfortable.
- Successful investors take time to read.
Learning how to master the market is a skill that top investors spend years perfecting, and they don't do it by sitting around checking Facebook all day.
Instead, they spend their time reading books, newspapers, trade magazines, and other publications to keep up with the latest market trends. They are always learning and improving.
The average American, by comparison, spends just 16 minutes a day reading, according to the U.S. Bureau of Labor Statistics. So if you want to get ahead of the game, put down your phone and pick up a book.
- They don't allow fear to rule their decisions.
Brain imaging studies have shown that emotions - fear in particular - are a major driver behind financial decisions. The more fear you feel, the more likely you are to make bad choices.
We get it. Fear is natural in this game.
But guess what? Every investor loses money at some point.
And those who stick with it usually come out on top because they don't allow panic to take over.
- They maintain a humble attitude.
Warren Buffett is considered the godfather of smart investing, but despite being worth billions, he still manages to come off as an Average Joe.
Buffett, like many other top investors who run large companies, embodies what research has shown to be true: humility is the key to being an effective leader. It is important for CEOs to relate to middle managers, and they do so through humbleness.
- They learn from failure.
"If at first you don't succeed, try, try again" is the motto of many a successful investor.
Instead of being discouraged by failure, use it as a motivator to push forward and find ways to improve.
This "never quit" attitude is what allowed investors like PayPal co-founder Peter Thiel and Skype backer Morten Lund to become the mega successes they are today, despite encountering big losses along the way.
- They demonstrate staying power.
Successful investors don't give up at the first sign of trouble. They know that building wealth requires digging in your heels and staying put for the long haul, even when the market seems to be going haywire.
Being able to demonstrate grit in challenging situations has been linked to higher rates of success, as proven by a University of Pennsylvania study.
- They exercise patience.
Making smart investments involves more than just picking the right stocks or mutual funds - timing also plays a big part.
The best investors are those who are prepared to wait for the right time instead of jumping the gun, a trait that's been proven to correlate to higher rates of success, according to a study by University of Chicago and Chinese University of Hong Kong researchers.
- They keep it real.
We probably all daydream about how we're going to make millions playing the market. But it's not a realistic way to accomplish anything.
In fact, one study, published by the Journal of Personality and Social Psychology, shows that fantasizing too much about a particular goal can actually impede your success.
Great investors keep their feet planted firmly on the ground and their heads out of the clouds.
- But they believe in their success too.
Even though investors are realistic about their chances, they know the first step is having a strong mental attitude. Sometimes, you have to make the vision clear in your head before you can make it true in real life.
Research has linked visualizing goals to increased levels of achievement, and wise investors aren't afraid to tap in to that internal mental power.
- They don't overanalyze everything.
As a new investor, do you spend hours planning what you should or shouldn't do, and then end up not doing anything at all?
Yes, put in time to do your research, but at some point, you need to pull the trigger.
Seasoned investors know that overthinking can actually hinder performance. Jon Stein, CEO of Betterment, admits that he overthought too much when he first started out and it just led to a ton of wasted time and money.
- Successful investors stay optimistic.
Dealing with the ups and downs of the market can be stressful, but research from the American Psychological Association has shown that the more optimistic your outlook is, the easier it is to ride the waves.
Thriving investors don't allow themselves to sweat it when the going gets tough; they choose to focus on the positives instead.
- They actively manage their investments.
Over 60% of Americans oversee their own retirement investments, according to Fidelity, but more than half of them haven't made any changes with their investments in the last two years.
A set-it-and-forget-it approach may work for paying bills or saving money, but it's not a good fit for investing if you want to see your assets grow.
- They don't play the blame game.
Truly successful investors know that when a deal doesn't pan out, it's not the time for pointing the finger at someone else.
That's especially true for investors who are in a leadership role, since blame tends to have a trickle-down effect within an organization, according to researchers at the University of Southern California and Stanford.
Instead, take responsibility for your investing decisions (even if they turn out to be bad ones), assess where you went wrong, and you'll be able to make better choices down the road.
- They keep an eye on their track record.
The most elite investors know that the best indicator of future performance is the past, and they pay close attention to what's working and what's not in terms of their portfolio.
If you've set some big goals for yourself with investing, focusing on where you've made the most progress can keep you from getting discouraged by a setback.
- Successful investors avoid impulse buys
Get rich schemes sound too good to be true, right?
That's because they are.
Smart investors know better than to fall into these traps. If you're feeling the urge to make a trade on the spur of the moment, having a little chat with yourself about what the downsides are can be enough to talk yourself out of making a bad decision.
Literally talking to ourselves can temper impulsive (and often foolish) moves, according to Alexa Tullett of the University of Toronto's psychology department.
- They practice good habits in every area of their finances.
In his book, The Millionaire Next Door, Thomas J. Stanley outlined the key habits of savvy investors:
They save aggressively, spend conservatively, and don't buy things they can't afford.
Adopting those same principles in your personal life can go a long way towards putting you in a similar league. After all, it's hard to build serious wealth when you're bogged down by credit card debt or are constantly behind on the rent.
- They practice gratitude.
We've all heard the trend of keeping gratitude journals by now.
While you don't have to jot down your thoughts down every night, being grateful for what you have is a generally good attitude to have.
Being grateful has been linked to lower stress levels and better heart health, but some researchers claim that it can also make you a better investor.
In one study, expressing gratitude was linked to a more patient and prudent response when being asked to make important financial decisions.
- They project confidence.
Projecting self-confidence is a must if you're going to invest - after all, you can't afford to doubt yourself when money is on the line.
Investors who end up at the head of the class know that a can-do attitude is a must for their success.
- But they don't take it too far.
Being a confident investor is a good thing, but there's a point when being overly so can work against you.
When your personal opinion of your investing skills is unrealistically inflated, it can cause you to make unwise decisions.
Unfortunately, this behavioral bias is all too common in the financial world, as a London study of 300 professional fund managers found that the majority suffer from over-optimism.
- They're educated about the market.
Just how much do you know about investment? Do you understand all your options?
There are plenty of other things to invest in aside from stocks, bonds, and mutual funds. But the majority of novice investors don't know about or understand the other alternatives.
In one poll, more than 60% of respondents said they didn't buy into things like hedge funds or commodities because they weren't clear on how those products worked. Proven investors, on the other hand, fully understand alternative investments as well as those that are more mainstream.
- They mix things up.
Unless you're working with a really small amount of money, limiting yourself to just 1 or 2 investments isn't going to net any major earnings.
Time and again, research has shown that diversifying your portfolio is one of the cornerstones of a solid investing strategy. The most important thing is to strike the right balance between investments so you're not spreading yourself too thin.
- They have an exit plan.
No one wants to go into something thinking that they might fail, but smart investors do prepare for it.
The most successful investors treat what they do like a business, even if they're not operating on a company structure.
That means having a plan for their money as well as an exit strategy for getting out when a particular investment starts to go south. If you don't know where to draw the line, you run the risk of racking up some big losses.
Did you recognize some of these traits in you?
If so, you just may have what it takes to become a successful investor. But even if you didn't, these traits can be developed over time.
Remember, it's not always about how smart you are. It's all comes down to determination, patience, confidence, and willingness to learn. And of course, the ability to take a risk.
Just keep on honing these traits and you will soon find yourself on the path to investment success.