“The individual investor should act consistently as an investor and not as a speculator.” – Benjamin Graham (British-born American investor, economist, and professor known as the father of value investing)
For any type of investor either institutional or individual, there is a common mindset that has to be developed. This mindset primarily should be based on discipline. Once the investor has conducted a thorough research and analysis on the level of risk tolerance and expected returns then what follows is the decision about what types of investments have the desired characteristics. When discipline comes into play, is right after the investor has formed an investment strategy. An investment strategy is formed after back testing of the investment models and making sure that, given a certain range of assumptions, an investment would be performing well. What several investment strategies usually miss out is a disciplined plan of action for the times when things don’t go towards the desired direction. Every investment move should always be backed by a set of alternatives that will be followed with precision. Although this may come at a cost, it is essential that is followed by all investors that also seek for a good level of protection on their investments.
Be Goal Oriented in a Timely Manner
All investors have certain goals they would like to achieve within a specific amount of time. The most skilled investors can set reasonable goals and benchmarks, which will allow them to monitor and make assessments on their investments periodically. Skillful investing isn’t just about being fortunate and making some good returns. Being a good investor means that you are able to quickly and properly interpret market trends and events given your targeted returns on your investments and the time horizon that you have set for achieving these results.
Understand the Value of being in Control
Investing is not for the faint of heart. It can and will be stressful at times, especially when the stakes are high and the investment’s performance is volatile. There’s a certain level of control for almost every investment, but there’s also an even larger level of uncontrollable factors. An investor cannot affect the market itself, but he or she can control the diversification level of their portfolio. Being in control of what an investor can take control of and rebalancing his/her portfolio, is necessary in order to make sure that unsystematic risk has been greatly minimized.
Anyone can learn to be a skilled investor if they devote enough time and energy in order to learn and absorb industry information. An investor should become well-informed about the businesses he/she plans to invest in and also learn as much as possible about the particular sectors, industries and geographies of interest. As markets can often become volatile, they can also affect the performance of an investment portfolio or a stand-alone investment. Therefore, investors that are more risk aversive should identify assets with strong fundamentals and solid expected long-term performance. These assets during a period of increased market volatility provide safety and many times due to the market conditions could be also undervalued, thus making them an attractive investment too.
Investors should identify their investing style and manage their expectations from the early stages of their investing activity. Do they make decisions based on emotion, or do they thoroughly consider the information and put as much rational thought into their decisions as possible? Self-awareness is one of the most important traits of an investor and that is what promotes stability and good performance in the long-term.