Top 10 Signs You’re A Good Investor
Today we’re going to discuss 10 Tips that I think make up a good investor. This is almost like a cumulative of some ideas and topics I’ve discussed in other posts and comments put into a singular post. This is not the end all be all of good investing ideas, it’s simply some things I think are important when it comes to being a good and principled investor. These are some more bite sized ideas compiled for your benefit.
1. Emotional Discipline: This is by far one of the most important things to consider when investing. As much as investing is about the numbers and the companies, you need to be stable enough to handle your equities. What’s your risk tolerance? Have you assessed this properly? Has it ACTUALLY been put to the test? Depending on what you invest in, daily swings will be greater or smaller. Many people claim to have a high risk tolerance for long term investing and yet can’t even make it a year of holding their investment.
2. Goal Setting: The mistake many people make is they don’t set their goals early enough: it’s never too early to plan. One of the best things you can do for yourself is having goals for your investing. Maybe it’s how many shares you’ll buy, how much capital or income you want during the year, maybe it’s to further research some companies, or maybe it’s your plan for retirement. Whatever it may be, you should be setting goals today. Blindly buying won’t help you achieve, and you need to know why you’re investing.
3. Understand Investments: This one shouldn’t have to be said, but you need to understand your investments and how they work. Whether it’s index funds, single companies, crypto, or fixed income: you need to know how they work. Your risk tolerance, goals and return all rely on you understanding your investments. Whether it’s as simple as knowing what an index fund holds and how it operates, or the ins and outs of a business and it’s operations, you should be researching and planning your thesis as you invest.
4. Opportunity Cost: This is one I want to throw in because it’s very important especially for beginners: know when you have a greater opportunity cost you should be aware of. Making bad investments will inevitably happen to all of us, and it’s important to know when we need to get out of these. Is your money better spent elsewhere? Is that loss easily gained back? Are you 100% sure on your thesis or is the loss due to gambling? Knowing when it’s time to back out and move your capital elsewhere is very important.
5. Egotism: The biggest thing you can do to help is drop 100% of your ego when you invest. It doesn’t matter how experienced you are or how much you THINK you are, the less you focus on yourself the better. Overconfidence is the downfall of the ignorant. A best way to go about this is to always assume you’re wrong and you have something to learn.
6. Open Ears: This one is apparently very hard for many, but allowing information and data to drive your decisions NOT your opinion or those around you. Investing is almost entirely a game of numbers and information that’s been studied for decades, and is not something you do because you made up an opinion. If you’re presented with new data, look at it. If it disagrees with your original thoughts even better, maybe you have something to learn. Not all information is relevant to your personal investing, but be able to stop in your tracks and do a 180 if you need.
7. Be Able To Explain: One of the best ways to tell if you’re understanding your investments is how well you can explain it off the top of your head. Can you name all of your investments and what they are? Can you explain the reasoning behind each? Could you tell someone why that one company you bought is performing well or your thesis? Could you have a conversation for more than a few minutes about different topics in investing? This isn’t the ultimate telltale sign, however the more you can explain something to someone else, the more likely you have a solid foundation of your understanding.
8. Macroeconomics: This is one that isn’t talked enough about, but the more you understand finances and economics outside of individual investments the better. This is a personal one, but all investments are in some way directly affected by government policies, world economics, and national level events. If you want to take your investments a step deeper, start adding macro requirements into your investment thesis (recession, interest rates, real estate, politics, etc.)
9. Separation of Attachment: This is a hard one for many people, but separating your money from yourself is a big step for investors. Your money is not your purpose nor reason in life, it’s simply a vessel to help you do the things that actually matter. You do not OWE your stocks anything, they do not care about you and therefore you should not treat them as such. Your goal is to make as much money as possible, and to do so you cannot have your investments be your foundation. Money works for you, not the other way around.
10. You’re Making Money: This is one seems obvious, and yet some people still can’t seem to do this. There are many factors to consider in this situation: what’s the index looking like? How is the world looking? Is there some major negative event happening? Is everyone else in the same boat as you? First you should evaluate what’s going on in the world and if everyone else is experiencing the same thing. If you find that you’re still losing money on investments yet everyone around you is taking in profit, there’s something going on. Either you’re making bad choices and you need to realize this, you’re with an institution or advisor that you should be looking at fees and how much you’re losing, or maybe your thesis hasn’t played out yet. The most important things is to be SELF-AWARE and that’s very difficult for many. Know when somethings going wrong, evaluate it, and be able to change if necessary.
Like I mentioned, these aren’t the only factors to consider, but rather some important condensed ones I wanted to highlight. I have multiple posts on many of these topics, so follow and to check those out if you haven’t. As always, do your research and happy investing!
