Successful investing does not come easy; there’s no question about it. There are too many participants in too many markets for “free” or “easy money” to be left on the table. Therefore, when looking across varying markets like real estate, equities, bonds, stock options, and even fine art, the concept of buying low and selling high (or vice versa) is significantly harder than it sounds.
With that being said, however, it certainly helps to learn from investors who have found success themselves and analyze exactly what they do that differentiates them from the mass amount of unsuccessful investors. With a little determination, resourcefulness, and the proper habits, successfully investing in any type of market might just become a little easier.
These are some of the traits and habits used by professional money managers and successful investors alike:
Having clear, well thought-out targets and goals for any given investment is totally mission critical, and professional money managers do this before they even raise capital to invest. In fact, when hedge funds are looking to raise new capital to invest, they almost always present clear and concise goals and targets (to whomever is supplying the money) for the return on investment the fund hopes to achieve. On a personal investment level, the idea of setting goals can come in the form of something as simple as setting aside enough money to purchase a few shares of a stock every month. By knowing the amount of money you want to have invested by a certain period in time, i.e. having a clear-cut investment goal, you can begin to map out an investment plan that will, hopefully, lead to investment success.
Knowing Your Options
It almost goes without saying that successful investors use every tool available in the market. It’s almost impossible for any successful hedge fund or institution to make money solely trading stocks. Nowadays, more and more funds and individual traders are using call options and put options to create various options trading strategies that increase their investment odds of success. Not only can options reduce cost basis, but they can also be used to hedge passive equity positions. Basically, the bottom line is that it’s incredibly difficult to generate sustainable alpha from only one asset class, especially one as mainstream as stocks.
Having a Plan & Sticking to it
Tying into the idea of having goals, you better believe that successful investors managing hundreds of millions (if not billions) of dollars have every inch of their investment plan mapped out. They have a certain amount of funds dedicated solely to buying calls, selling puts, trading iron condors, etc. For the most part, this concept of allocating funds stays pretty consistent to adhere to some of the key principals of diversification, which is another common habit and trait that successful investors share. Wise investors know not to allocate too much capital to any one investment or trading strategy, while simultaneously knowing they must allocate enough capital to make it worthwhile; a balance definitely exists in professional’s plans.
Having Realistic Expectations
With an investment plan mentally or physically mapped out, and several trading strategies ready-to-go, professional investors still stay realistic about what to expect from the market. And this goes for both up and down moves. In terms of the stock market, unless professional investors or traders are not uncertain that an economic event or other binary report will dramatically influence the price of a certain equity or equity index (i.e. insider trading), they are by no means seeking 500% returns on an individual investment. Why? Because returns of this nature simply don’t exist on a consistent basis, and successful investors are acutely aware of this fact. Instead, having a realistic expectation for the healthy, but not outlandish, returns that an investment will likely deliver keeps professionals on a successful track.
It’s naive to think trading stocks or trading options will be perfectly easy and come without any hiccups and hardships along the way. Investments of any kind are obviously not guaranteed to work, but the odds of them working, in general, tend to increase on a longer time horizon as opposed to a shorter time horizon. What this means is, if someone buys a house and the value immediately decreases within a month, that person could sell the house and take the loss, or they could persevere and not be overly concerned with short-term price fluctuations. Anyone who has ever tried investing will almost certainly tell you misfortune can and will happen at some point, especially in the immediate short-term. And this is only natural, because, like a rollercoaster at an amusement park, investing has ups and downs. Successful investors have been riding this roller coaster for a long time, so they take the bumps in stride, knowing that staying on the ride and not hastily aborting will be paramount to their investment success.
Staying in the Market
Above all, those who have no exposure to the stock market just don’t have the possibility of being successful. For example, Warren Buffet, one of the most successful investors in modern history, would not have anywhere near the amount of wealth he has now if he were not constantly shorting put options in the market during such a burgeoning time in America. From the mom and pop companies of the mid 1930s to the ubiquitous billion dollar tech startups of the 21st century, Buffett had exposure to everything and was subsequently able to grow his fortune enormously. So although it may seem plainly obvious, the most common habit successful investors share is simply being present in the market over a long period of time. Hence, the first step towards being a successful investor is simply being invested in a particular market – or many different markets. You can’t win if you never play the game.