Given the potential rewards, the risks being reasonable and given a method of well-defined risk management the equity markets across the globe (to our thinking) are the best game in town. However, the investor would require qualities of head and heart to achieve this success. These qualities of the successful investor listed and described below, would also be relevant to the other financial markets.
Winners and Losers: Vast fortunes can be made and lost during brief periods of trading in the equity markets. Now, what separates the winners from the losers?
The key to successful trading in the equity markets are not only attainable, they can also be learnt and taught. The successful investor exudes self-confidence, self-assurance and singleness of purpose. His handshake is solid, purposeful and firm. He looks you straight in the eye. He is well groomed and dressed.
Attitude verses Luck: The winners realize and recognize the importance of a positive mental attitude. They know that the power to achieve comes from within; and that positive motivation overcomes all obstacles to success. They are of the view that, one must have the correct attitude to recognize the opportunity for success.
We do realize that, a positive attitude cannot be replaced by the concepts of luck, positioning or political influence. Though these methods mentioned earlier also have their place in the scheme of things; and can and should be utilized to reinforce our positive mental attitude, but not replace it. In our struggle for success, a negative attitude can easily spell ruin, just as the lack of a positive attitude easily inhibits success.
Think, See and Do: To be successful, you need to emphasize on these elements. First, you must think. You must think about what you want to do and how you will do it. Next, you must see an opportunity as it develops. And lastly, you must act when the opportunity presents itself.
You must think, see and do, as these are the important elements to success.
A counter view, comforting to most people: The investor hopes for success in vague terms, he organizes for it. But, when it came to visualizing a plan of attack (or action plan) he was sorely lacking. Then, he did not visualize opportunities when they presented themselves. Also, because he was so intent on not missing opportunities and unsure about what opportunities he is looking for. So, he did not see the opportunities when they did present themselves. As the investor had failed to see opportunities, he could not act in order to get a successful result.
Success follows: Success will tend to take care of itself, if you provide the proper psychological and behavioral background for it to occur. Goals are wonderful, without them we would be lost. Yet, the road to success must be paved with behaviour, attitude, opinions and visualization. Each person has his own personal psychology and response style. There are four elements that comprise the essence of success theory:
- The way in which, we as investors deal with loss and failure is just as important, if not more important, than the way in which we deal with success.
- Effectively controlling and channeling emotions are two very important issues in the equation for success.
- Those who have been successful and continue to be successful as investors, recognize the importance of market psychology and incorporate it in their work.
- To be successful as an investor, you need to develop and maintain similar attitudes, behaviors and opinions.
Understanding failure: It is said that we learn more from our mistakes than our successes. Although success is important, it is equally important to understand failure and its role in shaping investor behaviour. The idea is not to punish or ridicule something done or gone wrong. But to understand it, correct it and do it right in the future, so that the rewards of being right may reinforce the winning behaviour.
The weak link: The markets offer fortunes without limit to those who master the few simple rules of profitable investing. However, the weakest link in the chain is, has been and always will be the investor himself. The investor would be well advised not to fall prey to the belief that a better investment and/or trading system will make you a better investor. The world's best investment or trading system in the hands of an incompetent, undisciplined and unsophisticated investor, will prove to be a vehicle for consistent losses and disaster. It does not matter how good your investment or trading system is, as it is you and only you who can make that system work as it is intended to. To put it into perspective, "It is not the gun that counts, but the man holding that gun".
Consider an investment or trading system that is so profitable that it makes thousands in a short period of time. Now, consider a period of "drawdown", which is a necessary part of the system. This drawdown is what really makes or breaks an investment or trading system.
If the investor were to limit the drawdown to what they should be, based on the trading signals generated by the system, then the system would recoup and move on to bigger and better things. On the other hand, if the investor is undisciplined and unwilling to accept losses when they should be taken according to the system; then the drawdown period will either be longer than intended. Further, the investment or trading system would deteriorate because of the investors lack of action.
Thus, the ability of an investor to cope with such periods of drawdown and paper losses will either make or break a system. No matter how good the system is, the investor himself is the weakest link in the chain. This lack of action on the part of the investor will break the back of the system and of the investor himself quicker that any unexpected adverse market event. At this point the psychology of the investor becomes most important; and attitudes, behaviour, perceptions and experience become important factors for success.
Finally, by correctly applying experience and coping with losses, the investor will either make or break the investment or trading system. There is no predetermined formula to deal with such adverse situations, but there are methods and procedures to minimize the degree of investor error; or in other words to maximize dependence on the investor's response style.
Short-cut to learning: You can learn the various aspects and elements of successful investing in many ways.
- You may undergo a long drawn psychiatric treatment that may or may not have the desired result.
- You could enroll in a success motivation course that may be of some help.
- You can read extensively about investment theory and practice; and develop your own system, which would include both method and procedure.
- You may read autobiographies of the great investors and speculators to reinforce your investment or trading system.
- You could also undertake a course to discover the perfect investment or trading system for yourself, only to discover later that it does not suit your style.
Whichever way you look at it, your focus should be on technique and investor psychology, as against market methodology or investment system which are secondary. A good investment or trading system is only 20% of the input for success. The rest of the 80% would include the following:
- Effective risk management tools.
- A positive mental attitude.
- A personal investor style or psychology.
- Discipline and structure.
- Consistency and persistence.
Visualize, recognize and act: To win the war as opposed to winning one brief battle, you need to think, see and do; as has already been brought to your attention above. "You need to visualize opportunities, recognize them when they appear and most of all, consistently act on them once they present themselves".
Winning attitudes and behaviour: Every signal generated by your investment or trading system must be considered to be the signal that will produce a vast fortune. If however, you do not look upon each investing opportunity as a significant opportunity for profit, then you would allow yourself the liberty to be dissuaded from acting on the opportunity.
No individual or course or tape or lecture or article can do for you what you can do for yourself. To develop this winning attitude and behaviour you have to work with yourself and develop your skills by yourself with your own effort. However, time is at a premium due to its limited availability, so you would have to be selective in what you study and learn. You should focus on your personal growth as an investor, with respect to various aspects to ensure that you become a successful investor.