The 5 Emotional Characteristics of a Successful Investor
“Growth is driven by compounding, which always takes time.” Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.
― Morgan Housel, The Psychology of Money
Investing in the stock market is a rollercoaster ride of emotions. Therefore, the best investors are not only knowledgeable but also have emotional fortitude. As this quote from Morgan Housel points out, the price of emotional decision-making can be severe.
As in other aspects of life, it is not helpful to simply deny the emotional ups and downs of investing. Successful investors acknowledge the emotions at all points of the spectrum. The key, however, is not to make impulsive investing decisions purely based on how you feel. Fear and greed are powerful! These emotions can cause investors to not only hurt their portfolio performance but also hinder themselves from reaching their goals.
So what do you need to become a successful long-term investor? Here are five critical emotional characteristics to develop:
Patience: Successful investors are able to resist the temptation to act impulsively and instead take the time to thoroughly research and consider their options. They understand that short-term fluctuations in the market are normal and don’t panic when prices drop.
Confidence: Successful investors have confidence in their ability to make sound investment decisions, even in the face of uncertainty. They remain calm, have clarity on what they are doing, and can easily define their investment strategy.
Discipline: Successful investors are disciplined and stick to their investment plan, even when faced with tempting opportunities or market disruptions. They often stay the course and find themselves doing very little differently from day-to-day and year-to-year.
Adaptability: A successful investor is, however, able to adapt to changing circumstances and adjust their investment strategy accordingly. They recognize that there will be times when the market environment or a personal situation can and should dictate changes.
Emotional intelligence: Successful investors have high emotional intelligence and are able to manage their own emotions effectively. They are self-aware and recognize when their emotions are affecting their judgment, and take steps to regulate them.
It takes time and practice to develop these emotional traits, but they are necessary for long-term success in the stock market and in life. Frankly, this is why many investors choose to work with a financial advisor. They believe an objective third party who has financial expertise will help them navigate the multitude of significant emotions and decisions that come with investing. Whether you invest on your own or with an advisor, these traits are vital to a healthy and meaningful investing experience.
