Outlined below are three common investor attributes I have found endemic among the hundreds of investors I have met and/or worked with over my 25 year career in the investment industry. These are not silver bullets to investing – just interesting commonalities. Like most difficult things, there is rarely a simple solution. And investing is one of those difficult endeavors.
The first attribute is this: most successful investors are investors and not savers. This seems obvious but it is not. There is a very big difference between how an investor thinks and a saver thinks. I did a quick Google search of common definitions for the two and came up with these:
- Saver – A person who regularly saves money through a bank or recognized organization.
- Investor – Someone who commits capital in order to gain financial returns
Though this is a start and does gives us the basic definitions, it does not take into account the emotional differences and the long-term expectations a person might have from the different perspectives. From my experience, the difference between the two is that an investor takes into account risk/reward and real rates of return after inflation, while a saver is only focused on safety of the principle. If I was ranking common attributes of successful investors, this one would be number one. An investor understands risk/reward and is willing to take it. A saver cannot manage any kind of risk emotionally or financially and this in and of itself makes them bad investors.
The second attribute of successful investors is they seem to always take both a long term view and a long term approach when making investment decisions. It is important to understand that this does not mean they buy and hold forever. After making an investment, they periodically review performance and make appropriate adjustments. Warren Buffett runs arguably the most successful investment company in the world, Berkshire Hathaway. He takes a very long term approach to investing. But he also sells holdings periodically if their growth prospects change.
The third attribute many successful investors share is they do not treat investing like it is a game. A very common mistake I see both clients and prospects make is they listen to their brother-in-law, neighbor, CNBC or others who are more focused on short-term events, versus taking the long-term view. This noise can create undue stress and confusion, and cause a person to make decisions that are not always in their best interest. Investing is not a game, although if you listen to some of the business channels, they sound more like Sunday NFL preview shows than investment shows.
In summary, investing and saving are very different, although it is easy to see them as the same or at least similar. They are not! Take a long term view of investing. And finally do not treat investing like a game. It is your future. Build discipline into your investment decisions and utilize at some level an investment professional. Do not go it alone!