Last week I wrote about six traits which I think all True Investors should possess.
To follow up on that, I will be sharing four more traits. This time round, the traits are not to be found in True Investors. Rather, they are traits often displayed by the antagonist of the True Investor – The Wannabe Investor.
1. Wannabe Investors tend to be good with news.
Introducing friend C. (purely fictional character. Any resemblance to living person is purely coincidental. C, pls do not leave angry messages). C is the most updated ‘investor’ I have ever known.
Every time I meet him he would be spouting numbers from FOMC meetings. He can tell me what was the increase in Singapore’s NODX. He knows exactly which company is going XD when and how many percent yield would that work out to be at current prices.
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I never fail to be amazed by how he keeps up. It is almost as if he has an intimate relationship with financial news and numbers. He makes me feel like I have been living in a cave.
That’s not all. With the information at his finger tips, C is able to provide pretty solid insights at the way the market is heading. They are well thought out and they sound absolutely believable. In his presence, I am ashamed to call myself a finance blogger.
But guess what, when asked about his own investments and how well they are doing, C goes quiet. You see, C does not invest. Not at all. He is saving up, he claims. He is waiting for the right time to enter the market, he would insist on another occasion. He has no time to monitor his investments, so he says. Only he himself knows the real reason for him to be sitting out the market for years.
It is one thing to be studying and commenting on the markets. It is another to have real money vested.
True investors may or may not be good with news. It all depends on the form of investing they choose to practice. True investors are not about the market. True investors are in the market.
And Wannabe Investors, despite how well informed they can be, are not.
2. Wannabe Investors surface whenever the market is hot.
My involvement in the stock markets began in 1999. The markets were hot then. Buying stocks (I will not even call it trading, much less investing) was the in thing. My friends were deep into it. My relatives were talking about stocks at dinner gatherings. Uncles and aunties staking out brokerages at Raffles Place and staring intently at the Teletext screens are a common sight.
Penny stocks had an great run. It is not about which stock you picked that determined how much you made the past week. It was how much you dared to buy, how much you dared to contra, and how long a line you had with your broker.
The going was good while it lasted but it all ended up badly with the dot com crisis. Suddenly the market went quiet. ‘Investors’ crawled quietly back into the woodwork.
Such a phenomenon is not limited to the stock market. The same applies to properties. And gold. And basically any other investment instrument that is hot at that point in time.
Now it is easy to get caught up with the grind of daily life – work, family, kids, holidays. There are thousands of more important things to do, and investing often gets relegated to the bottom of the list, especially when the markets are slow.
The fact is, true investors understand that the money is made in buying when everyone is selling (or not buying) and selling when everyone is trying to buy. When markets are quiet, they are studying, plotting and executing their next move. True investors are always in the market. True investors never rest.
Wannabe Investors are everything but that.
3. Wannabe Investors nibble at investing.
Once again I share my personal experiences. I first entered the workforce when I was 21. To be finally making my own living was a liberating experience. I spent money liberally. Everyday was a celebration.
Fortunately I realised the need to make my money work hard rather early on. I started listening out for investing opportunities.
A friend introduced me to funds, and the sexy story that is Brazil, Russia, India and China (BRIC). I thought that might work, so I parked a small sum in there. Another friend bought up landbanking. I was doubtful but again, I parted with a small sum just to give it a try.
After working for some years, my wife and I had accumulated a substantial amount in our CPF. We thought an investment property is in order and we gave that a shot. We could have afforded better but we bought the smallest cheapest property we could find.
And occasionally there were ‘stock tips’ from well meaning friends, colleagues and relatives. Again, small sums of money were directed to each of these prospects.
I look back at my previous ‘investments’ sometimes. They make for a good cringe. There is one common theme in all these investments though. And that is, I have no conviction in whether they will work out or not. I was just nibbling and trying them out.
Sure I am ‘investing’, I was making investments. But am I an investor? Hardly. Because a true investor does not simply go around collecting investments.
Instead, an true investor has conviction. An true investor understands what will work and what will not. Of course, sometimes the market may turn against him and he would be caught with losses. That is all part of the game. That does not deter him from his convictions.
His conviction will allow him to invest courageously. His conviction will stem from real understanding of how and why the investment will work. His conviction will cause him to drop all other insignificant investments that come along.
Wannabe investors lack conviction. Because of that. they can only nibble.
4. Wannabe investors lose money because they lack luck. True investors lose money because they lack skill.
All investors lose money. It is improbable for an investor to never have lost money before. They might be the best and the fastest, the wisest and the richest. Or the investor could have been the worst and the slowest, the dumbest and the poorest. They would all have lost money before. All of them.
The wannabe investor knows exactly why he has lost money. The reason is rather simple – He is really unlucky. After all, the global stock market has crashed and all stocks are down. Or that the government has installed cooling measures and property prices are reined in. Or that the company selling gold that has promised such great returns have folded. These are events that no one can predict. It can be nothing but bad luck.
The true investor on the other hand offers an exactly different set of reasons for his losses. He chased stocks and bought them at high valuations. He got caught up in the property frenzy and overcommitted. And that he got greedy when it came to promised returns, when he should have critically examined if it is indeed viable.
The true investor takes each lesson to heart. He welcomes each setback, because they present him with invaluable learning opportunities. He looks forward to each investment opportunity, because they not only represent a chance to make money, but also a chance to cut his craft and to grow as an investor.
The wannabe investor will continue to make the same set of mistakes over and over again. After all, he reasons, his luck has to turn sooner or later.
All in all, I have shared ten traits to be found in investors. Six of them characteristic of True Investors who have or will find success in the markets. Four additional traits are those that will hinder an investor from success and profits.
I hope you see bits of yourself in these traits – be it that of the True Investor or the Wannabe Investor.
If it is the former, congratulations and you deserve long lasting success in the markets. If it is the latter, Awareness is but the first hurdle. Accept your shortcomings as an investor and take Action to address them now!