Stock Investing Advice
By Michael Cintolo, Vice President of Investments, Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory 2/16/08
I think two key factors—hard work, and staying focused on what can be controlled—are key to making big money in the market. In fact, I'd say these are two of the most important traits of successful traders.
Interestingly, I recently read an article online that relayed a few thoughts about the distinctions between successful traders and those who are failure prone. One of the biggest differences: The market can change its tune in a heartbeat but ineffective traders cannot...or at least refuse to try. These traders think everything has to make sense, and rapid changes in direction rarely make sense, so they fight the new trend.
To me, this fits under the "hard work" category—the best investors take a few minutes each week to not only review the market's recent action, but to also consider a few scenarios of what could happen going forward. Going through this mental exercise means you'll rarely be caught off guard no matter what the market decides to throw at you.
Another difference: Unsuccessful traders think every trade is a referendum on them, their success, their worth, and their trading system. Thus, even though nobody is going to pick all winners (the best investors usually win half to two-thirds of the time), these traders believe a two- or three-stock losing streak means they're awful...while a two- or three-stock winning streak means they're geniuses.
In other words, odd as it might sound, these investors are focused on things they can't directly control—i.e., exactly how each and every one of their stock picks is going to fare. That's not to say profits and losses are unimportant, of course, but the best investors usually focus on the process, not the exact results. Said another way, the top traders usually focus on following their own proven system (realizing it will dish out good results over time), rather than what's pushing their stocks around day to day.
Incidentally, the article also stated that both winning and losing traders are obsessed (in a good way) with the market—both are passionate about producing results. But the winners tend to be much more modest and have a game plan for playing defense (cutting losses short, not putting too much money into an initial position, etc.), while the losers are more gung-ho, which eventually creates some very big losses.
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