Secret to Investing Success!?
It's interesting to see a thread on secrets to investing success in Next Insight. And in that thread, you'll see people advocating value investing, quoting Buffet, asking for high dividend stocks etc.
It's interesting because I disagree.
I disagree because I feel that there is no one secret to investing success.
I think that each starting investor has to find their own path, and that path will be their own secret to investment success.
First, the investor should find the suitable investment philosophy i.e. whether technical or fundamentals, short-term or long-term, diversified or concentrated etc. A suitable investment philosophy should fit his own psychological traits.
Next, the investor has to consistently refine or expand his strategy. For a value investor, it may be starting with low P/E stocks and then moving to low P/B stocks. Or starting with quantitative ratios and moving on to qualitative measures.
In between, the investor also has to learn his own psychological traits, and either change the investment methods to fit his psyche or change his psyche to fit the investment methods. Personally, I think the former is easier, since Jesse Livermore chose the latter and died a pauper.
And when does an investor know that this investing philosophy is suitable? When the investor feels that he needs not search for another philosophy.
And when does an investor know that this investing strategy is right for him? Through his experiences and investing results over a full market cycle.
And what is one essential trait that most successful investors share? Obsession. He must be, to some extent, obsessed about investing. I do not mean about being crazy about the money. I mean being crazy about the philosophy, the strategy. For example, if you read Buffett's biography, when Buffett and Gates meet each other, you will know that they will talk about what makes a successful business. They do not talk about money.
For more information on finding an investing path, you may find Mark Tier's book "The Winning Investment Habits of Warren Buffett & George Soros" extremely useful.
And what if one does not wish to pay the price to become a successful investor. There are a few alternatives here. One, buy index funds or exchange-traded fund on stock indices. Two, find a good financial advisor. Three, earn very high pay.