How to become a successful investor

If you were to become an investor in 1602, you’d be making sea voyages safer. “How?” you might ask. The funds raised by the first shares were used to spread the risk across a pool of investors. So, if the trip was cut short by pirates, disease, misfortune, shipwreck, and various other factors, investors would suffer just a fraction of the total expense of the voyage. 

But enough about the past — investing is about the future. This article is about learning how to become a successful stock investor, so read carefully!

1. Focus on the long-term plan 

What are your investing goals? How long do you plan to hold your investments? What level of risk are you willing to take? What can you afford to lose?

Before purchasing anything, sit down and make an honest, thorough assessment of your entire financial situation. If your finances are in order, you can then establish your investing goals and time horizon. But these are just prerequisites for an investment plan — the fun part is choosing strategies that will help you meet your objectives. And the difficult part is sticking to your plan, no matter how anxious you get during market drawdowns.

2. Be willing to learn 

The market will be volatile. If you get too comfortable with your go-to strategy, the market will eventually prove you wrong. 

As an investor, you need a set of tools and strategies that will help you navigate different market circumstances — bulls, bears, flats, economic booms, recessions, etc. 

To build strategies, you can:

  • Read books on personal finance, investing strategies, and the stock market. You don’t even need to read exclusively about your target market — a lot of tips work well in different markets.
  • Follow the news and educational web resources, like Investopedia, The Balance, Financial Times, and MarketWatch.
  • Learn from stock simulators. Try out new strategies and learn from your mistakes without risking real funds.

3. Be diverse

Every time you look up how to become a successful investor in the share market, you probably see — diversify, diversify, diversify! Is this advice overused? No, because it works!

These are the basic rules to keep in mind:

  • Apply qualitative risk analysis to minimize unpredictability.
  • Make short-term and long-term investments. 
  • Choose portfolio allocation based on your risk appetite (stocks are higher risk, higher reward; bonds are lower risk, lower reward).
  • Buy in international markets.
  • Stay on track with regular checkups and rebalancing.

4. Have conviction

Good [investment] ideas should not be diversified away into meaningless oblivion.

Bill Gross, CEO of PIMCO, an investment management firm

When you decide how to diversify your portfolio, it should be just a tactical decision. Some of your stock picks should be companies that you genuinely support and in whose positive impact you believe in. The perfect combination is when you like the company and your research is pointing out that it can be a real winner.

If you like the company, you’re likely to understand them better. When they make a certain announcement in the future, perhaps a merger, you’ll be able to guess the implications. If you’re always online, your basket can include Meta and Alphabet. If you’re a fan of cinema, you may be interested in Disney and IMAX. If you want to support renewable energy, your picks may be Tesla and Clearway Energy.

Takeaway

Investors don’t agree on much. But when it comes to a positive mindset, many of them agree on the importance of planning, learning, diversifying, and having conviction. 

Here is another thing for you to contemplate:

Investing is not about playing the market, and successful investors don’t desperately chase every opportunity to get returns. Try to a balance between capital preservation and growth, and of course, get into the right mindset before you start investing.

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