Bonus 2: The Three Characteristics of Winning Investors

I believe there's a misconception about what makes truly successful investors, whether they are investing their own money, or other people's.  

To the man on the street, the qualities that successful investors have in common 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, successful investors in the stock market are 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.

So, you ask, what are the characteristics of successful 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 in 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 requires 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.

Click here for information on Cabot Growth Investor or Cabot Top Ten Trader.


Michael Cintolo can be found on Google Plus.

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