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The 5 Mental Traits Of Great Investors
Some investors focus on fundamental analysis, others on technical analysis; but the truly great ones conduct what can be called 'rational analysis'
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"90% of the game is half-mental", said famous baseballer Yogi Berra once, in his typically inimitable style. And while we can smile while reading it, there's no denying the underlying wisdom of this particular "Yogi-ism" - and the fact that the amusing aphorism bears special significance to the game of investing. What separates great investors from the good, the average, and the not-so-good ones is more often then not, their mindsets. And here are 5 traits that these mindsets typically comprise of.
Good investments rarely bear fruit within a few months. Sometimes, deep-value investments may take several years to unlock their potential and grow; and when they do - they often become multibaggers. Armed with the understanding that securities markets won't move at their whims, great investors have the patience to ride out lean phases if they have the conviction that they've picked a winner.
Reactiveness can be the investor's worst enemy. Buffeted by noise, news, expert views, and the inevitable vicissitudes of securities markets, mercurial investors move in and out of stocks, mutual funds and other assets; only to 'miss the bus' or 'jump onboard lame horses' with startling regularity. Resultantly, they not only incur loads and taxes, but also rarely unlock value from their holdings. Great investors possess excellent impulse-control mechanisms which mean that they aren't prone to speculative buying or fear-based dumping.
Some investors focus on fundamental analysis, others on technical analysis; but the truly great ones conduct what can be called 'rational analysis'. In other words, while they do their homework and make the best possible effort to pick fundamentally sound investments, they also make an effort to keep track of which way the wind is going to blow. For instance, market corrections may have brought stocks into fairly valued price ranges - but a great investor will not rush into them hook, line and sinker if the overall sentiment remains extremely bearish. Rather, he or she would wait further or stagger their investments into the market.
A lesser known term, meta-awareness means 'awareness about awareness' or in other words, the ability to 'think about what you're thinking'. Great investors seem to possess this trait; and it helps them sidestep the minefield of behavioural traps that stand in their way to investment success. Whether great or not, every investor's mind will routinely play tricks on him or her, dredging up biases such as the action bias, the sunk cost bias, and a host of others. In such situations, it is meta-awareness that prevents the truly great investors from acting on these biases.
Oodles of patience and conviction notwithstanding, great investors also tend to be surprisingly fluid in changing their viewpoints if underlying fundamentals undergo dramatic shifts. In other words, they do not unnecessarily conform to a particular viewpoint just because they've held on to it in the past. They are open minded enough to accept facts and their implications, and tweak their investment strategies and asset allocation in tandem with shifting realities.