By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory  11/26/09 Sign up for free Cabot Wealth Advisory e-newsletter

I believe there's a misconception about what makes a truly successful money manager ... whether that person is managing his own money, or other people's.  

To the man-on-the-street, the qualities that make a successful investor are usually high intelligence—often demonstrated through an MBA and/or a resume chock-full of jobs at places with great reputations—and the ability to foretell the future ... the so-called "Seeing Eye" of investing.  

In my opinion, that is totally missing the boat.

First of all, in the stock market, you're probably better off having a master's in psychology than one in business. Don't get me wrong, it is very important to be able to analyze companies, but for growth investing, you usually just need to cover your bases, as opposed to digging into the minutia of financial statements.  

Far more important is being able to determine the "ruling reason" for why a stock is likely to grow many-fold in the years ahead. And for that, you need some experience (i.e., knowing how to spot revolutionary products and ideas), not necessarily an MBA.

Second, the so-called Seeing Eye—the ability to look at a bunch of data and determine what's going to happen six months from now—is totally overrated in my book. Yes, the best fundamental thinkers can often get an edge in this department, but in my experience, any edge gained over the course of a couple of years can easily be wiped out by some unforeseen event. Just take a look at last year!

So, you ask, what are the characteristics of winning investors?  I can think of three that are particularly important.

First and foremost, discipline is needed. The stock market is such a contrary animal that it acts just about the opposite of a logical person. Thus, it's important to have a system that works, and to have the discipline to stick with it ... something that's particularly hard to do after a streak of wins ("I'm smarter than this system!") or losses ("This system is for the dogs!"). If you invest solely based on your emotions, you're sure to sell near the lows, buy near the highs and lose a ton of money.

Second is the ability to admit mistakes. Too many investors, both novice and veterans, let their egos get in the way of their decisions. If you're a growth investor, the most important thing you can do to improve your results is to never lose big.  It's like having a great defense in football—if you don't give up any touchdowns, all you need is a couple of big plays (winning trades) to win the game.

Third, and possibly most important, is the ability to be flexible. As our founder Carlton Lutts has always reminded us, the music is always changing the stock market—when you get used to the market's waltz, it changes to a foxtrot, and when you're used to that, here comes the samba. Thus, you have to be willing to change your opinion in double-quick time ... or else risk being left behind by the market.

Notice that none of these three traits require 10 years of business school or an internship at Goldman Sachs. That's what's so great about the stock market—it truly can be an American dream—if you're willing to put in the work and learn what systems and habits actually work over time.

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