Many people believe that investing is incredibly complex, and something that only geniuses can do. But investing is not a game where the smartest win – it’s a game where those with the best habits outperform.
People can spend hours in front of spreadsheets computing discounted cash flows, the net present value of various company projects, and the internal rate of return on all of these, but if investing could be quantified completely then everyone would be rich.
Investing isn’t just a science. It’s an art. Sure, you can tot up the assets and projected cash inflows during the asset’s useful lifetime value, but where in the spreadsheet do you put the strained relationship between the chief executive officer and the chief financial officer? Some things just can’t be quantified.
Patience is a virtue
All the great investors over time have exercised great patience. Warren Buffett is quoted as having said his favourite holding period as “forever“.
In the short run, the market is a gamble. It’s very hard to predict what the entire market is going to do short term – humans aren’t rational and they are dictated by their emotions. Fear and greed are exacerbated in stock prices when the outcome depends on short-term events.
But in the long run, the stock market recognises value. That’s why it’s key to have patience. It may take a while for the market to wake up and realise, but the importance of research and sticking to one’s guns pays handsome profits in the long run.
Don’t be afraid to go it alone
A healthy degree of contrarianism is required to be successful in stocks. Ideally, we want to be one of the earlier people at the party. We don’t need to be first, but finding a stock that everyone thinks is dirt, which is actually gold is what makes people money. Being right early, and holding on as the market eventually discovers what you found a while ago, is how many successful investors have made millions.
Of course – being one of the earlier people to the party means that we will be considered ‘wrong’. If wanting to be right in other peoples’ eyes matters to you, well, being a successful investor is going to be tough. Lone wolves beat sheeple every time.
They put in the work
Investing is one of the only professions that people think they can turn excel at with no skills or experience and still get rich. That’s just not the case, and like any skill, it needs to be honed and refined.
It’s also a numbers game. The person who looks at 100 stocks is going to have a better chance of finding a gem than someone looking at 20.
If you want to be successful – put in the hours to find a great stock that the market hasn’t discovered yet. Then be patient enough to let your thesis play out in the market.
