Iconic investors are the rock stars of the financial world. Many people wonder if they have what it takes to find success with investments. In this article, Daniel Calugar, an experienced investor, highlights some of the personality characteristics of a great investor. He discusses patience, risk tolerance, and thinking for oneself, along with common traps and errors to be avoided.
If there were an investor’s hall of fame, it would include Bill Miller, Benjamin Graham, Carl Icahn, and Peter Lynch, to name a few. These investing icons are notable not because they amassed individual wealth; instead, they have contributed valuable investment philosophies for others to learn from.
Bill Miller, for example, popularized the idea that any stock can be a value stock if it trades at a discount to its intrinsic value. Benjamin Graham pioneered the philosophy of value investing. Carl Icahn developed a reputation as a “corporate raider” after perfecting the art of the hostile takeover. And as an investor, Peter Lynch averaged a 29 percent annual return, consistently more than double the S&P 500 stock market index.
To be a great investor, it takes just the right combination of risk tolerance and patience. Your risk tolerance describes the amount of loss you are prepared to handle while making an investment decision. Knowing your risk tolerance level helps you plan your investment portfolio and will dictate how you invest.
For example, if your risk tolerance is low, your investments will be made conservatively, and you will include more low-risk investments and less high-risk investments. Too little tolerance for risk or too little patience, and you are likely to panic and make decisions that can cost you money.
Investing is not a “get rich quick scheme.” Successful investors find it beneficial to exercise patience and let their investments increase in value over time. Most financial advisors acknowledge that slow growth is the most effective method to improving your net worth. There’s wisdom in playing the long game. This strategy allows compound interest and reinvested dividends to grow your balance over time gradually.
The financial industry attracts all kinds of people, each with their own agenda. Advice is plentiful but not always trustworthy or helpful. Investors need to be able to think for themselves. No one understands your risk tolerance, level of patience, financial resources, or investment needs better than you do.
It is essential to develop a thorough understanding of the markets you wish to invest in, applying what you know about your circumstances to your investment strategy. Others will shout advice from every side, but only you can determine the level of risk for which you are comfortable.
Common investing traps and errors include trying to time the market. You may get lucky once in a while, but it is impossible to know with certainty when you should sell ahead of a downturn or start buying before a resurgence. Moreover, because value is gained by buying low and selling high, immature investors often try to out-guess the market instead of methodically growing their portfolios.
To be a great investor, learn to understand your risk tolerance and develop your patience. Study everything you can about what the legendary investors of the past and present have done or are doing, but remember they are not you, so adapt, not adopt their strategies.