Although there are many things an investor can do wrong in the markets, there are only a few things he or she can do right. We are all well aware of how important risk management, discipline, and a good investment method can be. Yet without a doubt, they are all useless in the hands of a trader who is psychologically inept or self-destructive. It is unfortunate that investors still believe in the myth that a better system will make them better investors.
The factors for achieving investment success are primarily psychological or behavioral (see Trading Psychology for more information). Experience taught professional stock market traders that three factors make up about 90 percent of the formula for achieving and maintaining investing success in the stock market:
1. Detachment
In order to invest successfully, you must “not care”, be detached from your work as a trader. At times, being human gets in the way of success by throwing
emotional roadblocks in your path. Emotional roadblocks cloud judgment and inhibit success. Just as a surgeon must not become emotionally involved with a patient, an investor must not become emotionally involved with his or her trades, or for that matter, with the idea of success. Keep yourself from caring too much, and you’ll facilitate success.
2. Persistence
Clearly, the investor who is a quitter will never succeed, because he or she will not be in the markets when the big moves occur. A truly successful investor is willing to come back fighting after a loss or after a string of losses.
3. Realistic attitude
Successful investors must maintain a realistic attitude in order to succeed in the game of high expectations. All too often, investors have grossly unrealistic expectations about what they can achieve in the markets. Dreams of striking it rich or of being in on that one stock or property that makes you fabulously wealthy are self-destructive and divert your attention from the reality of your goal.
The fact of the matter is that you are far better off catching smaller profits that have a higher degree of accuracy than expecting large profits that are not likely to occur or will take so long to develop that you’ll have at least 100 opportunities to make mistakes.
That is the best advice for any big, small or any great investor.