Investing in the stock market is a complicated and oftentimes stressful endeavor. You will experience constant ups and downs, both in terms of profits and emotions. Having gone through this process myself, I find the following traits essential and necessary for anyone who are serious about becoming a successful investor:
Patience is one of the key traits you need in order to achieve success when investing in the stock market. It takes a lot of time to study and learn about a particular company and the markets and a whole. Patience is also required as a company’s share price may move sideways or in the opposite direction before going in the direction that you want it to.
I’ve personally exited trades early due to sideways price action, only to find that I would have made solid gains had I waited just a few more days. Having patience and waiting for a company’s share price to move in the direction you want it to is difficult but is definitely worth it.
Self-control is another important trait you need in the stock market. This trait allows investors to avoid the common and costly mistake of jumping into trades without much thought or research. Investors without self-control may find that they are quick to move in and out of trades with the hope of large profits, only to find that they have acted rashly and lose money.
I’ve entered trades without much thought, due to adrenaline and the allure of large profits. From my personal experience, these are the types of trades that lead to significant losses and can significantly damage your portfolio.
When investing in a certain company, you are bound to encounter others who believe the opposite of what you do. You may strongly believe that company XYZ’s share price is going to double by 2018, whereas an article online may argue that said company is going to fall into bankruptcy in several years. I’ve found that many investors are either unwilling or unable to listen to other perspectives and viewpoints, which can lead to significant losses. I personally believe open-mindedness is one of the most important traits required to acquire success in the stock market, and will provide several examples of why this is important below.
For example, I initiated a short position in Skechers despite listening to several valid arguments against doing so. I refused to listen to these arguments due to my personal opinion of the company’s products and lost money when the company announced that he had purchased $10 million in stock, which led to a rally.
On the other hand, I wrote bearish articles on Under Armour when it traded in the mid-$40’s. I argued that slowing growth and declining profit margins would lead to a share price sell-off in the coming months, and advised investors of this company to sell. Many ridiculed my arguments and refused to listen to my side. Under Armour’s share price has fallen more than 30% since then, and those investors could have saved a lot of money had they taken into consideration my arguments.
Diligence is another trait required by anyone who wants to become a successful investor. Performing well in the stock market requires knowledge of current events, an understanding of what moves the financial markets, and knowing the ins and outs of various companies. There are many necessary tasks before investing in a company, including analyzing its balance sheet, industry in which the company operates, assessing its competition, etc. These are all time and effort-consuming chores, which requires diligence and hard work.
I’ve personally initiated long and short positions in various companies without the proper research or analysis, and these plays also happened to be the ones that I lost money on. There is definitely a correlation between hard work and profits, which is why I’m including diligence on this list of traits required for success in the stock market.
There is certainly no magic formula to become a successful investor, but keeping this list in the back of your mind is a good starting point. I’ve settled on this list of traits after experiencing countless ups and downs during my own time investing in the stock market and have found that the above traits have helped me significantly as an investor.
Happy investing, and check out this list of investment books for trading success in 2017!
Edwin Kye is Keel’s Research Intern.
He began investing due to his passion in sneakers and fashion. To date, Edwin has averaged 25% returns on his investments, which include long/short positions in companies such as Nike, Adidas, and Under Armour.
He has advised analysts at various hedge funds about the footwear industry and the viability of different investment theses, and writes regularly on Seeking Alpha. He also runs a blog at TheSneakerGuru.com, where he comments on various aspects of the fashion and footwear industries from an investor perspective.
Edwin is currently an undergraduate economics major at Cornell University.