9 Important Characteristics of Highly Intelligent Investor
vemuda.com - Whenever we get even the slightest eye-opener insight into finance, our brain somehow autotunes us to think about investing. And that's a good thing. However, before you embark on your investment journey.
You must analyze what type of investor you'd like to be. Do You want to be a good investor? Or you're just looking to have a piece of that investment pie that's going around. If you are the former, I highly recommend that you stay till the end of this post.
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As we will be giving you some of the dos and don'ts that every good investor lives by. We’ll be using lots of borrowed principles and methods from none other than Benjamin Graham, who is probably the most exquisite investor of our time, besides his student Warren Buffett.
With that said, Here's a look at some characteristics that every intelligent investor possesses.
1. They never trust the market
If you want to be an intelligent investor, I highly recommend you treat the stock market as a woman. Let her awe you with her stunning good looks, but be wary of her irrational behaviours. Most of which are short-lived and only spur things out of proportion.
You must ignore her outburst if you're looking to turn your relationship into a serious long-lasting one. This is the same as the stock market, where stock prices will reach crazy highs. While other times, they'll reach a conspicuous low.
How you may be wondering? I already told you the market suffers from mood swings and can flare up at any given time. That's why you see stock prices for a gadget that has been raved about for months rise high. Only for it to come crashing, after the gadget release because it didn't match up to people's expectations.
Intelligent investors always work with research that has been thoroughly done and does not sit around trying to speculate how the market will go. So self analyze and realize where your problem lies, then work on your discipline to avoid having bad investment habits.
2. They put all their investment eggs in one basket
Warren Buffet once said that diversification is the protection of ignorance, and it makes no sense if you know what you're doing. By this, he most likely meant that you should avoid bank advice to diversify your investments widely.
For starters, this is because diversification isn't a guarantee to limiting losses. This investment move is more likely to stagnate your growth potential than offer protection.
Logically speaking, in which world do you expect to grasp every concept behind 100 companies?
It's impossible to fully dedicate time and effort to do all the research needed into these companies to assure you of choosing a potent investment.
It's better to choose at most five investments you'd like. After that, you could delve further into knowing everything there is to know about it.
Always remember that over-diversification is a guaranteed sign of mediocrity. And those are not the words any intelligent investor wishes to be associated with. So always be shy to dip your fingers in every pot.
3. They set an investment formula and stick to it
Your biggest enemy when it comes to investment is your emotions. So you'll need to do everything possible to drive a wedge between those two. Even if it means setting a strict formula that you work around every time you invest.
For the Graham students, they know it as formula investing. However, the rest of us have come to know it by its other name, dollar-cost averaging. It means that for you to be a good investor, you need to set a fixed budget.
Have a set amount of dollars that go into either monthly or quarterly to your investments. This amount is supposed to religiously go into purchasing more of a stock you've previously picked. Regardless of the price, it costs a lot to purchase.
This will be brutal for you emotionally, but it's a necessary evil. That is paramount to building you into an intelligent investor. Additionally, this is a great way to protect yourself against losses that can be incurred from investing largely and all at once.
4. They apply Graham's 3 principles to investing
One of the best traits an intelligent investor can hold is practicing this principle from the guru himself Graham. Before you invest in a company, always go deeper into your research.
- Analyze their company principles and their performance for at most the last decade before you decide to invest in it.
- Diversify your investments to shield yourself from the losses that come with the monotony of your investment.
- Choose investments that offer slow and steady returns instead of those that promise insane profits.
These principles are easy to grasp and apply by ensuring complete investment analysis into anything. Focus on finding the gap between the prices at present of a company to the possible value it can accrue in the future. Pick three or four of these companies which you can focus on.
This move will also help you avoid losses if things go sideways, As you'll be able to save a good batch of your investment eggs since you didn't store them all in one place.
Later you can enjoy the continuous fruits of your labour through 10 or 15% yearly return. Which is most times the bare minimum, but in the long run, these small profits add up.
5. They aim at capital preservation above all else
An intelligent investor's main agenda and goal are to ensure that they expose themselves to as little losses as possible. All this should be achieved without risking and limiting any potential capital profits.
That means that intelligent investors are keen to ensure that they preserve the investment capital. They'd rather break even with the losses and profits incurred, thus ensuring their initial investment stays intact.
One may say that this is the creation of some form of a safety net for them. It’s more commonly referred to as having a margin of safety. This means that these investors will go into investments that have almost zero risks.
Also, they tend to shy away from investments that require them to have some large possibility of being risky.
The main objective of every investor should be to avoid losses. And this doesn't mean that now you should avoid all kinds of risks. Try to avoid those that have the possibility of causing a significant amount of loss to your money.
You'll never see a smart investor comparing returns to the market or to how the economy performed. No, they try and realize a real positive return each year, no matter the circumstance. It doesn't matter to them if that means underperforming market indices. They'll do it without a second thought because for them, the sky is the only limit.
How do you spot an intelligent investor in this case? They'll always safeguard the investment capital by buying securities that have a large safety margin. If capital growth happens as a result of this tactic, then they see it only as a positive outcome to their methods.
6. They ignore market fads
Over the years, there have been a lot of rumours going around about some big-shot investment. Those that are the must-have in our community, a good example is crypto.
Have you heard of how people speculate on this matter with Claims that this will be the end of paper money and a lot of other theories? This is nothing but pointless talk that has no sufficient backing to begin.
Be like an intelligent investor who believes that the future is uncertain and anything can happen in its course, like a pandemic leading to the crash of many stock market investments, even crypto.
Brace yourself because whatever is to happen will happen. There'll be no red lights screaming at you to take it slow cause there's danger ahead. Always stay on track by educating yourself regularly about these frenzies.
This will allow you to be aware of what is happening and why. You'll also be in a better position to anticipate the results.
7. They let opportunities pass them
Aren't you always wondering why the best-known investors don't sell their stock just because the price tripled overnight? Most people would likely be running around a circle, from their broker to their bank cashing in as much as possible.
That's why most folks are nowhere near the creme de la creme of investors. These few people have the virtue of patience that they allow opportunities to pass them.
This is because they understand that it isn't necessary to take advantage of every opportunity your way, in oder to make a good return.
Like the intellects they are, they won't go after every single mouse that runs across the room.
Alternatively, they'll reserve their energy and wait patiently for an opportunity that they can confidently pursue. This tip will save you if the prices start to fall prematurely. I promise you that you can't do this task if you're emotionally weak.
It needs lots of practice and acceptance before you can get a good handle on your emotions.
No matter the outcome, even if that means looking like a clown because you stayed away from buying a certain type of security only for them to turn around their fortunes.
8. They take advantage of the falling price
To be a good investor, you must be able to think on your feet while also being able to hold steady before making a decision. This is what makes intelligent investors different from all other investors. Because even amid market indices dropping, they stay calm.
The rest of us panic at the slightest inconvenience and end up making impromptu decisions that will cost us in the end. It's a good thing that money can still be made, even when you disagree with every other person's way of thinking.
The only way you can stick to investment is by realizing their value, even in badinstances.
If you had a good reason for choosing that investment. Then it doesn't matter if the price is dropping because you strongly believe things will take a good turn. Even better, you know that your reason for choosing this investment is backed by thorough research.
Be brave in these turbulent times, as no one can ever be perfect at timing the market. And that's the beauty of investing.
9. They follow either of these two portfolio policies
One intelligent investor keeps up with research continually even after they've set their mind upon which investments to make. After which, the biggest task will be selecting and monitoring a certain investment mix.
Another one selects a permanent investment portfolio that can run on autopilot. Whichever one of these portfolios you pick, make sure that it works for you. By considering your lifestyle, relationship status, and needs of your family, if any.
We've sadly come to the end of our post. But before I close it off, I want to highly recommend to you the book the intelligent investor by Benjamin Graham.
He has taken the time to explain these traits in-depth in his books. While also shining a light on how exactly you've been going wrong with your investments. Also, the book isn't boring or too catchy. It doesn't promise you the world if you practice his ways.
A 16year old eager to know more about investments may find it a refreshing read. People over the age of 30 will be amazed when they realize all the secrets that it holds.
What I'm saying is that, this book is timeless. It's suitable for whoever wishes to learn a thing or two about the smart investor. If you've read the book, then give some of your reviews on it, down in the comment section.
So, thank you all so much for reading. ith that being said, have a great day and see you all in the next one!