How to Be a Successful Investor

How to Be a Successful Investor: Strategies to Help You Tame the Bear & Ride the Bull!

Book by William Cai

While investing is easy, successful investing is tough.

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Through my portfolio management experience, the most important rule for successful investing is to first learn how not to lose money — i.e. one has to learn to survive first. This is also what many investment gurus have constantly preached. I learnt that profits take care of themselves but losses never do. Investors should learn how easily they can be 'killed' in the stock market, and should develop strategies to survive before risking their hard-earned money. 

My experience has also made me realise how most investors suffer great losses and would probably continue to do so because of three reasons. Firstly, they are not really aware of the causes of huge losses. Very often, they have an investment advisor to blame, who in turn blames the bear market and the inability of the investors to stomach risk and "think long term". As a result, they get hit again and again whenever the stock market crashes. 

Secondly, many investors and financial advisors alike subscribe to the "buy and hold" advice when it should have been "buy and hold until fundamental changes". When they lack the knowledge to make the right investment decision, it is often more convenient to stick to the buy-and-hold concept. They ignore the fact that fundamentals do change and they become sitting ducks, losing money in the end. Perhaps their fundamental views are wrong in the first place. Instead of taking action to limit the damage, it is easier to be in denial and chant the "buy and hold" mantra. 

Thirdly, many investors do not have a stop-loss policy in place. When things go wrong, many freeze up like a deer caught in headlights and end up getting run over. When a 10% loss occurs, it is allowed to widen to 30% and more until it becomes too late for investors to react. That is precisely how investors get 'killed' and become "long-term investors" unwittingly. 

Lastly, most investors rely on tips do not know how to make actual buy or sell decisions to avoid bear markets and ride bull markets. They get confused by the different advice and headlines from the media.

If you have been an unsuccessful investor in the past, you need to change in the way you think and invest.

Nothing will change until we change in the way we think.

Successful investing takes discipline, consistency, hard work and it can get quite boring.

Chapter 8:  THE PSYCHOLOGY OF THE MARKET 

Bull markets are born on pessimism, "grown on scepticism, mature on optimism, and die on euphoria." 

~ Sir John Templeton 

An investment strategist friend once said, "Human beings are naturally programmed to lose money." I found his statement hilariously true as most investors are often willing to invest only after they feel `safe', which is often the worst time. Ironically, it is hard for investors to make a bold decision to invest when I see the opportunities, as it is always during a time when it feels wrong to invest. That is why most investors do not make money from the stock market. They invest at a market peak and bail out at a market bottom, only to repeat this losing process. 

To be successful investors, we often have to act against our human nature. We must look to exit the market when we feel the safest and invest when our guts chum at the idea. Other than all the methods shared in this chapter, it is important that investors understand the psychology of the market, as investors themselves will be the biggest enemy of their investment success.