Sometimes it’s easy to assume that everyone is just like you. As experienced investors, we often forget that not everyone has a sound understanding of investment and trading strategies. With that being said, it can be helpful to pause from time to time and discuss a few lessons that everyone should study.
1. Learning must be a priority
It’s impossible to be a successful investor if learning isn’t a priority. You can’t just guess on stocks and use your own intuition to guide your portfolio. Knowledge is power in this business, and the “intention” of being successful isn’t enough.
“Action follows intention so take your first step toward trading by making a resolution to learn how to trade stocks,” successful investor Timothy Sykes says. “Don’t gloss over this step or take it lightly. Take the time to consider why you want to learn about the stock market and what you hope to gain from it.”
2. Don’t invest what you can’t lose
As a rule of thumb, don’t invest any money that you need. There’s always the possibility that you’ll lose it or be unable to pull it out for months or years at a time, and that’s not a position you want to be in.
“An investment that looks great on paper does not always pan out in real life,” one expert reminds us. “Before investing a dime into the stock market, consider that losing all of your money is a real scenario, however unlikely.”
3. Have the long term in mind
Investing in stocks isn’t a get-rich-quick scheme. It’s not the kind of thing you do when you need to turn $500 into $1,000 by the end of the month. It’s not even something you do when trying to grow your money by 15% by the end of the year. Can this happen? Sure – but it is not something you can control. Markets are at the mercy of uncontrollable factors. The only way to generate a strong return is to patiently wait.
4. Know your risk tolerance
“Risk tolerance is a psychological trait that is genetically based but positively influenced by education, income and wealth (as these increase, risk tolerance appears to increase slightly) and negatively by age (as one gets older, risk tolerance decreases),” investment adviser Michael Lewis explains.
If you stand any chance of being a successful investor, you must possess a keen understanding of your risk tolerance. Are you willing to risk $500 to win $500, or only risk $50 to win $500? Your amount of risk tolerance directly affects your investing strategy.
5. There’s no place for emotions
Rarely will you meet an emotional investor who is also a successful investor. The reason is that stock market investing is a calculated, analytical, mathematical pursuit. Once you let your emotions get the best of you, you end up making choices that are good for your feelings and bad for your portfolio.
6. Find some mentors
It’s wise to find a few mentors and immerse yourself in what they have to say. The key is to make sure you have mentors from multiple schools of thought. You don’t want to limit yourself to one strategy or theory. The more concepts you expose yourself to, the more rounded you’ll be.
Smart Investors are Informed
Nobody becomes a successful investor overnight. It requires years of learning and a healthy dose of experience. Instead of assuming that everyone is on the same page as you are, take time to educate those around you. A little bit of teaching can go a long way toward helping someone become successful.
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