4 Key Insights You Need to Become a “Best Investor”
Whether you are just starting your investing journey, or you have been an investor for years, your goal is probably to gain financial freedom. But investing, as you know, can be risky. Or does it? How does a “Best Investor” reliably come out far ahead years down the road?
The way to do that—to invest like the best—is to learn to think like the best.
There are four key insights you need to develop your own Best Investor mindset. Adopting these insights will probably require you to check some of your own impulses, intuitions, and thought processes. You’ll need to evaluate your own behavior and make adjustments.
It’s true this can be challenging, but doing it successfully leads to a far more effective set of priorities and assessments. And that’s the key to transforming your investment prospects and achieving your goals. So what are these four insights? Let’s walk through each of them to get you started on your journey to investing like the best.
#1: Take Full Responsibility for Every Choice You Make
The first (and perhaps most important) thing you must understand to be a Best Investor is that you are responsible for every investment choice you make. If you choose an investment manager, take full responsibility for that choice. Did you choose well, and are you sufficiently monitoring the manager and using the right tools and assessments?
On the other hand, if you manage your own account and you’re surprised by a sudden loss, do you blame someone or something else for what you believe contributed to the loss? Or do you accept that the losing position included some risk? Do you then check whether that risk was allocated appropriately and whether the trading plan includes what to do next? The latter response will help you learn from the experience and do better next time.
Unless you accept responsibility for all of your decisions, you can’t learn and improve. You’re setting yourself up for painful lessons down the road and crucial lost time.
#2: Don’t Focus Solely on Returns
Once you understand that taking responsibility for your choices helps you grow as an investor, it’s time to start learning from your successes and failures. However, as the best investors know, you must look at more than just the return. Return tells you whether you’ve gotten richer or poorer, and by how much. That is important, but it does not tell you whether you were lucky or skillful, high- or low-risk, or whether you have hit on a strategy worth repeating.
For example, if you doubled your money because you bought a biotech stock just before the company announced a positive FDA trial result, was that skill? Or was it dumb luck resulting from an inappropriate risk? All you know is that this time, it worked out in your favor, but not whether you are going to be rich or poor over time if you repeat the investment process. A huge gain is great, but it also reflects a high risk. If the event had gone the other way, the loss would likely also have been huge. Too many losing trades could wipe out your capital.
That’s why understanding insight #2 is so important. What matters is how you assess the skill of the process, not just measure the return. An investor controls only the investment process, not the outcomes of individual trades. Only looking at returns, and, particularly, shorter-term returns, not only tells you very little about the skill of the process, but it can also be misleading. It may reflect high risk and luck, rather than a durable and skillful process.
Instead of focusing on returns alone, measure your process to understand how you achieved your results. Remember, investing is complex and requires careful attention and analysis. To truly succeed, you must be able to look past the return to the strategy (or lack thereof) behind it.
#3: Don’t Assume You Can Predict the Future
Taking responsibility for your decisions and understanding how a particular strategy benefited you are both vital to investment success. But having the mindset of a Best Investor also means that you understand that you cannot predict what’s going to happen. Commit to thinking about the future by making decisions only through the lenses of humility and probability.
When developing your investment strategy, it’s helpful to understand what your beliefs are. Strong beliefs, forecasts, or assumptions of knowledge can anchor you into a flawed conviction about outcomes. Accept that you are not in control of the environment, only yourself.
Accepting this insight can be challenging. Many people seem to believe that they know what the future will bring. It’s fine to talk about what could happen, but no investment allocation or strategy should become anchored to any one outcome.
Because they know they cannot predict the future, the Best Investors plan for any outcome, and they execute on those plans. They focus on their process and know it will involve gains and losses. However, they also know that with the right mindset, the odds are in their favor over time.
#4: Realize How Your Investment Process May Be Falling Short
The final insight you will need to develop a Best Investor mindset will help you understand why your investment decisions may not pay off. It acknowledges that we all have cognitive biases: the best investors are aware of their own biases and make decisions that compensate for and overcome them.
Putting insight #4 into practice means that you internalize investing rules and make decisions based on the data. It means you avoid making decisions based on what your gut tells you, or what feels right.
Moving Into the Best Investor Mindset
Whether you’ve been investing for years or are brand-new to investing, these 4 key insights are crucial to developing a Best Investor mindset. They are challenging: it can be difficult to take accountability for your decisions or identify your own cognitive biases. You may be tempted to try and predict the future, or you may feel like you’ve achieved success if you have high returns.
However, if you truly want to achieve financial freedom through investing, you must learn how to move beyond these impulses. You must learn to think like the best.
For more advice on how to develop a “Best Investor” mindset, you can find Invest Like the Best on Amazon. https://geni.us/InvestLiketheBest
Chris Belchamber holds a Math MA from Oxford University. He has been an investment professional since 1984. His first investment book was published by Credit Suisse First Boston in 1988. He was recruited by JPMorgan in 1989 to run their UK Sterling Bond Sales and Trading and then focused on Proprietary Trading, where he was promoted to Managing Director. He presented JPMorgan’s UK Bond Market’s development paper, endorsed by Margeret Thatcher, to the Bank of England in 1989. In 2003, he started his RIA in the US. He enjoys music, reading, writing, and almost any sport, and is currently an active golfer.
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