We spend a lot of time here at Wicked Capital focusing on the technical aspects of long-term investing—specifically dividend-growth and value investing. However, while this knowledge and skillset is important for achieving long-run success, it only represents the tip of the proverbial iceberg. The 70% that lies, unseen, beneath the surface of investing is psychological—or behavioral. In this article, we are going to disclose 5 crucial qualities that highly-successful long-term investors share.
I prefer to consider these as qualities rather than traits because the term “trait” suggests something you are born with. While it may be true that certain individuals are born with traits or personalities that lend themselves to “investing” (e.g., an aptitude for finance, business or critical thinking), the five qualities we will explore are all things that we can develop within ourselves with some attention and effort.
While the degree to which we can develop these qualities may be relative (both in terms of the qualities themselves and to the level achieved by others)—the point, none the less, is that each and every one of us can cultivate these qualities in ourselves and our investing activities. And by doing so, we can improve our investing and both our potential for being successful as long-term investors and the level of that success.
These five qualities are drawn both from the research of Dr. Brett Steenbarger (a behavioral finance psychologist) and my own decades of experience as an investor. In addition to teaching at SUNY Upstate Medical University (Syracuse, NY), being a FORBES contributor, and authoring numerous books, including The Psychology of Trading, Enhancing Trader Performance, The Daily Trading Coach, Trading Psychology 2.0, and Radical Renewal, Dr. Steenbarger works as a performance coach for hedge fund portfolio managers—performing research at some of the world’s largest hedge funds and with top portfolio managers.
The first quality shared by highly-successful long-term investors is that they are deep thinkers.
Investing is not about speed—rather, it is about depth.
First, success requires the capacity to gather large amounts of information, data, and research. This goes beyond the simple and readily available data from financial statements. It’s about finding sources of material and meaningful information that lie below the surface and off the beaten path. Low hanging fruit won’t deliver long-run investing success… it requires being able and willing to explore the whole tree.
Second, success requires the capacity to process and understand that information in greater depth than the average market participant—and to understand its significance over a longer time horizon. Markets are much more efficient over short periods of time than longer ones. As we argue in our articles Here’s Why an Efficient Market Is Irrelevant to Long-Term Investors and Value Consistently Trumps Growth for Long-Term Investing, this is the great edge that successful investors leverage—time arbitrage. However, this requires the ability to develop big picture ideas that will unfold and transpire over longer time horizons.
As Dr. Steenbarger notes, accomplishing the above points requires a “capacity for sustained focus.” Highly-successful investors have cultivated the ability to focus, concentrate, and persist in this “deep thinking” process. We must continually dig and research to find the trends, patterns, and opportunities that the vast majority of others miss.
The second quality shared by highly-successful long-term investors is that they exhibit originality and creativity.
As I noted earlier, for all intents and purposes, the market is highly efficient. We all have access to and look at the same basic information. If we want distinctive results, we have to be able to produce something unique in value from that information. Success with long-term investing requires the ability to zig when everyone else zags.
Great long-term investors are able to draw original, creative, and unique conclusions from their deep thinking. They are creative thinkers that think outside of the box, challenge the consensus, and reject group think. They are inherently contrarian and refuse to follow the herd. They are self-confident trailblazers that march to the beat of a different drum.
To gain a sustainable competitive edge, we must either (a) seek different information or (b) look at the same information differently. This requires us to develop a level of creativity that allows us to play a different game than other consensus investors. This is the contrarian edge.
The third quality shared by highly-successful long-term investors is that they are life-long learners.
They have an insatiable appetite for knowledge—both in a narrow sense (i.e., investing) and a broad sense (e.g., business, economics, socio-political, etc.).
Highly-successful investors learn from others. They borrow and use bits and pieces of knowledge to assemble a continuously-evolving system and process. They don’t live in a bubble. They aren’t cocky and think they know it all. They don’t shun the work, thinking, and advice of others. Yes, they are professionally skeptical (like a great auditor), but remain open to absorbing the knowledge of others, where and when it proves valuable.
Understand, this does not mean they follow others or copy their big ideas. Rather, it means they leverage the shared knowledge of the investing community to improve their own ability to develop creative and unique ideas.
Furthermore, great investors actively seek to learn and develop their craft. They never allow themselves to think they’ve arrived or reached the ultimate plateau, nor do they passively wait for others to teach them. Long-term investing is not a lightbulb that turns on with a simple flip of a switch, nor is success achieved via osmosis. Great investors are driven learners who thrive on and derive great enjoyment from gaining knowledge—knowledge that enables them to think deeper and more creatively.
As investors, we must continually evolve with and adapt to the changing market environment and the global economic/business milieu. There is an inherent shelf-life on investing ideas (potential edges). One idea—no matter how great it was—will continue to work forever… we must always be on the quest for the next one. We must avoid anchoring to one past idea lest we fall into the trap of being a one-trick pony or one-hit wonder.
The development of investing knowledge and skills is especially important early on. This is why I created Wicked Capital and the purpose behind it—to help provide knowledge, advice, and encouragement for investors of all levels and stages. We don’t expect you to agree with everything we write. However, if our articles (1) encourage you to exercise critical thinking, (2) inspire you to question your preconceptions and explore the world outside your “box,” (3) stimulate your creativity, and/or (4) provide you with a few nuggets of value that you can build-on in your own investing, then we feel we’ve accomplished that mission!
The fourth quality shared by successful long-term investors is that they are emotionally resilient.
They have a market mindset that understands we are dealing with a probabilistic system—one in which the future is unknown, and all outcomes are possible, even if not probable.
As such, they make sound investment decisions—utilizing appropriate risk management.
However, they recognize and accept that things can and will go wrong—not every investing thesis will prove valid.
When things go south, they are able to constructively critique their thesis, process, and themselves to identify what they can do better or different next time.
They embrace failures as learning opportunities (see quality #3) and are motivated by them to do better.
They don’t fear failure or mistakes, nor do they let them discourage them. Instead, they are able to learn from them and separate the events from their emotions.
Remember, as Warren Buffett and Peter Lynch are found of pointing out, you only have to be really right two or three times out of ten to do just fine over the long run. However, that means (1) you will be wrong seven or eight times and (2) you can’t allow those failures to impede your opportunity to be right!
Finally, I would add that contrarian (value) investments take time to play out—and frequently get worse before they get better. This is why investing is so difficult and challenging for most folks. You have to have the emotional resilience to stick with your process—unless the underlying thesis has changed.
Failure should serve to make us better, not tear us down. This requires developing your emotional resilience. Failing to do so will lead to bailing-out of investments, a lack of consistency, and an inability to progress along the investing learning curve.
The final quality that is shared by successful long-term investors is focus on attention to detail.
While idea generation is the heart and soul of long-term investing, even the greatest of ideas is worthless if we can’t transform that idea into a winning investment. All highly-successful investors have the ability to take an idea from their mind or paper and put it into action in the real world—to implement it effectively.
This ability requires tremendous attention to detail in order to structure the investment properly, as well as maintaining effective portfolio and risk management.
For example, say you have the big idea that demand for LNG will dramatically rise over the next twenty years. How do you turn that thesis into a successful investment? What if you focus on the transport of LNG—for example shipping? If so, which companies do you invest in? Which ones provide the greatest upside potential should your thesis prove correct, while providing the greatest value (margin of safety)? The devil is in the details and the best long-term investors are able to focus very effectively on those pesky little details—enabling them to turn great ideas into great investments.
It is the mental (or behavioral) side of investing that separates the highly-successful long-term investors from the ordinary. As we have seen, there are five critical qualities that are shared by these great investors:
In addition to these five, core qualities, I would argue that there are four additional (supporting) qualities that you need to develop in your own investing. If the five core qualities represent an investing framework for or ladder to success, then these four behaviors enable you to climb that ladder effectively and efficiently:
Long-term investing (e.g., value or dividend-growth investing) is not a shoot-from-the-hip or adrenaline-rush endeavor. Rather, it is a mental pursuit—one more akin to playing a game of three-dimensional chess that unfolds over a long period of time (i.e., years or decades rather than days or months).
This is why it is critical that you employ the right process and mindset in your investing!
Just because you zig when others zag, that doesn’t mean (1) you’ll be right or (2) you’ll be right quickly.
Sometimes the best contrarian ideas—the ones that really payoff big—can take years or even decades to playout. And things often get worse before you start to see success with them.
You must use your process, trust your process, and have the discipline and patience to stick with your process—to confidently persist where others fear to tread.
As long-term investors, we can’t be all over the place—we need to stay in our lane, while developing and improving our knowledge, skills and abilities. We must remain logical, methodical and measured. We must avoid the urge to chase shiny objects or abandon our ideas when the luster begins to wear off.
I hope the qualities I’ve shared in this article will provide you with some measure of value—providing you with specific areas that you can work to develop and improve. If you would like to learn more about the mental side of investing, I recommend reading these other articles we’ve published: 9 Sure-Fire Signs You’re NOT a Long-Term Investor, Paradigm Shift: The Dividend vs. Growth Investing Mindset, and 6 Ways to Win the Dividend-Growth Investing Mental Game.
If you would like to learn more about the process behind long-term investing, I encourage you to checkout my article Dividend-Growth Investing Success Is All about the Process.
Finally, if you’re interested in dividend-growth investing and/or looking for valuable insights into value investing, then you’re in the right place!
At Wicked Capital, we focus exclusively on helping others become as successful as possible with dividend-growth investing and we hope you’ll continue to return to our site to learn, grow, sharpen your skills, and find effective and positive ideas and motivation!
Soak it all in, take and use what you want, modify it to fit your unique situation, and keep building that DGI portfolio with a solid process and winning long-term investing mindset!
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