Long-term investing is more about understanding human nature than it is about complex spreadsheets.
When you look back through history at some of the greatest investors, there are a few commonalities that stand out. Whether it’s Warren Buffett, Benjamin Graham, or Charlie Munger, there is a lot to learn.
While investing certainly involves doing your homework and studying markets, the keys are more personal.
5 Key Investing Traits
Know Your Tendencies
Are you someone who panics when the market drops 5%?
Or are you thinking, “this is a good time to buy” when the market sells off?
Are you someone who looks at your accounts daily?
Or are you someone who feels comfortable only looking at your investment accounts 2 times per year?
Knowing your investing tendencies is so crucial because it then allows you to design safeguards and rules around those tendencies.
Having an investing plan, or process, which is highly recommended, starts with knowing your investing self. Asking yourself questions like “why do I panic so much when the market dips?” will shed light on your motivations and reasons for investing in the first place.
Take the Appropriate Amount of Risk
This step directly plays off of knowing your tendencies. Often times, folks get worried about their investments because they are not taking the appropriate amount of risk. They over expose themselves to the fluid nature of the markets.
Money needed in the next 1-3 years should not be at risk in the market, as a general rule of thumb. The market moves, that’s just what it does. If you need X amount of dollars by Y date, that money belongs in a savings account, not an investment account.
When risk tolerance and time horizon line up, it becomes easier to focus on the long-term. When our focus is on the long-term, it gets easier to not rip up the script and continue to let the investments compound.
Realistic Optimism
Over a day, week, month, or even a year, what the market does is anybody’s best guess.
But, when the time horizon is zoomed out to 5 years, 10 years, 30 years the market seems to only head one direction, higher.
Being able to keep this fact in mind when the news is blaring doomsday headlines and the world seems to be falling apart is absolutely imperative.
There are NO GUARANTEES when it comes to investing. Yet being able to keep an optimistic viewpoint on the future is one of THE KEY traits all successful investors have in common.
Perspective
Think back to all that has happened in just the last 15 months. If you were to know ahead of time in winter of 2020 that a global pandemic was about to happen, you probably would’ve wanted to take all your money out of the market and put it under your mattress.
And that would’ve been the EXACT WRONG THING TO DO.
Look, things were rough for a lot of folks this last year or so. And things will be rough again in the future. That’s why not having more at risk than necessary is so important.
Being able to keep a cool head and not have short term knee jerks reactions that blowup your investment plan is a superpower.
Compound interest is said to be the 8th wonder of the world. But investors need perspective in order to let it continue to compound.
Learn From Mistakes
There is no such thing as a perfect investor. Even the best make mistakes along the way. It’s been said that “it’s okay to be wrong, but it’s not okay to stay wrong”.
Look, mistakes are going to happen. Life is going to change. And your investment plan will probably change with it.
The key is to view each mistake as a learning opportunity and make course corrections along the way.
If you haven’t noticed these tips aren’t about the best trading strategies or how to use complex options to get rich quick. Good, sound investing does not involve getting rich quick. It involves having conviction in your plan and staying the course.
And the best way to do that is to know yourself, your risk tolerance, and your time horizon while having the proper long term perspective and attitude along the way.
We talked more about the importance of having an investment plan on a recent podcast! Check it out here!