The phrase “life” is interpreted as “peaks and valleys.” Likewise, the term “investment” has a similar connotation. In this path, sunny days are abruptly followed by clouds and then rainy days, yet after the rain comes the rainbow.
For example, you may gain higher returns on your investment. But the market collapses the next day owing to inflation, and you lose all you have invested.
However, having the following characteristics is compulsory if you have decided to become a successful and intelligent investor.
- Strong-willed
- Courageous
- Sound intellectual framework
- Emotional discipline
- Personality for risk
These traits will drive you on a fulfilling road even in the darkest times because life is supposed to teach us lessons that will eventually make us wiser. So, are you willing to subscribe to the most profitable yet rough journey? Let’s go!
This article is inspired by the writings of Benjamin Graham, Warren Buffet, Thomas J. Stanley, and Nigel Cumberland—one of the most notable figures in the financial world.
Disciplined Personality
From Warren Buffet’s view, A market is a pendulum that actively swings between unsustainable optimism and unreasonable pessimism. The market remains loyal to its nonlinear traits, either stable or fluctuating. On the other hand, a wise investor is a realist who sells to optimists and buys from pessimists.
What does this mean? The attitude while investing evolves with time, but investors who religiously practice a disciplined approach stand with steadiness in the surge of economic adversity and fluctuations in the market.
You might be wondering why I am demonstrating the qualities of an intelligent investor. These attributes I’m jotting are the backbone of investment; even in the worst time, a savvy investor knows how to manage and swim out of trouble.
Investor vs. Speculator
With his profound common sense, the father of practical investment, Benjamin Graham, defined investment as “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.”
What does it mean? In simple words, Ben demonstrated three critical elements for investment.
Before purchasing a company’s stock, it is integral to do an in-depth analysis of the company and the underlying financial soundness,
- Shield yourself from significant losses deliberately.
- Aspire to perform adequately, not extraordinarily.
Now, what distinguishes an investor from a speculator? An investor calculates the stock’s worth based on the value of a business; in contrast, a speculator ‘gambles’ that a stock will go up because somebody else will pay even more; you can name it reckless investing. However, Investors evaluate market prices using defined value standards; meanwhile, the speculator develops their standards of value ‘upon’ the market price. Benjamin Graham encourages investing if you would be content owing to stock, even if you didn’t know its daily share price.
For a better understanding, consider casino gambling in the case of speculating; it can be exciting and lucrative if fate’s swing is on the good side, but bear in mind that this is the worst potential strategy to accumulate wealth. Conversely, investing is a unique casino where you will not lose if you play by the principles that squarely put the odds in your favor.
People who invest make money for their lives, but people who speculate make money for their brokers.
Defensive Attribute
Graham defined defensiveness as directly proportional to your risk tolerance and willingness to invest considerable time and energy into your portfolio. Your negative experience does not drive the decision to invest in stocks; if the stocks are priced and capable of providing growth prospects, you should own them regardless of any losses you may have had. And if you properly pursue this, investing in stocks is just as easy as parking your money in bonds and cash.
Risk Comes from Not Knowing What You are Doing
Intelligent investors make sound decisions even when the outcome is unknown and they have high-risk tendencies. Suppose you are inclined to take more significant risks; note this. In that case, you have a more incredible opportunity for return and better investment decisions.
Don’t Put All Your Eggs into One Basket
Imagine you have invested all your money in stocks, and the other market drastically crashes due to hyperinflation; the prices have fallen, and recklessly, you have put all your eggs in one basket, which is potentially dangerous and devastating.
You lose all your amassed wealth with one basket and create a poor portfolio lacking diversity. Experts suggest that the more diverse the portfolio is, the higher the chances of success. Successful investors practice dynamic asset allocation, which includes redistributing assets among various classes based on the possibilities of expected returns compared to the risk and evaluated worth, as mentioned in the first guidance. Consequently, the yield is multiplied; however, it takes substantial time and expertise to achieve the confidence to get it right. Moreover, receiving advice from a fund manager can be beneficial in some cases if you pick on it smartly. But, if you have a learning attitude, then The Intelligent Investor by Benjamin Graham can do wonders for you.
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