The 7 Most Important Traits to Be Successful with Investing

If you want to win at investing, you will need to develop seven traits. Without them, you will struggle. It is rare for an investor to succeed without all seven.

#1 Hard Work

This is the only one that might not be required but only if your parents left you a massive amount of wealth. It isn't that you need to work hard at investing. It is that you will need to work hard at something else to have money to invest. There are many jobs out there that allow you to earn more than you need to live. Most of them require you to study hard and then to work hard, probably for many years.

If you don't like the idea of a J-O-B and prefer to work for yourself, you're going to have to put in some hard work for a few years to build a successful enough business that will provide you with money to invest. Almost all of the successful investors I know worked hard for a long time at something profitable.

#2 Laziness

Say what? That's right. Not only do you need to work hard for a while, but you have to be lazy enough that you aren't willing to work hard forever. I suppose you can continue to work 80-hour weeks the rest of your life and pile money into investments and end up the richest person in the graveyard. In my experience, however, those folks don't put away all that much money because they plan to work forever.

Most successful investors have well-defined goals, and one of those goals is usually to stop working at some point—or at least to work less. That's laziness. Don't be ashamed of it. Cultivate it and let it motivate you to put in the work that needs to be done early. Most of the world's greatest entrepreneurs are lazy. They saw a problem and figured there had to be an easier way to deal with it than what people were currently doing.

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#3 Frugality

Most people like to spend money. Most people think they want to be a millionaire, but what they really want is to spend a million dollars. Those are actually polar opposites. The way you get to be a millionaire is by not spending a million dollars that you could have spent. Successful investors must have something in which to invest. Preferably a lot. The only way you get that is by earning it (see hard work above) and then NOT spending it. It takes frugality to live well below your means.

#4 Logic

Most people don't invest logically. They don't start by asking themselves questions like:

• What is the most likely way for me to be sure of reaching my goals?
• How can I reach my goals while taking the least possible amount of risk?
• What does the data say about the smartest way to invest?

Instead, they run around like chickens with their heads cut off from one investment to another, trying to time the market, chase performance, and gamble. Most people invest emotionally. They invest by feel. They put their money in when it feels safe to do so (usually after a big run up) and then pull it out when it feels scary (usually after a big drop, resulting in the classic buy-high, sell-low behavior).

However, the far better approach is to be like Spock from Star Trek and approach the whole thing using only the logical part of your brain. You don't have to be an Einstein to realize that stocks are a good investment if you invest in them properly. Properly means buying and holding a static asset allocation of low cost, broadly diversified index funds for many years. It's a practically fail-proof strategy. The exact asset allocation doesn't even matter much. Funded adequately, any reasonable asset allocation will get the job done.

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#5 Patience

Get-rich-quick schemes abound because people are not patient. You're probably not immune. Exhibit A? More than 2/3 of doctors either have a car loan or a car lease. These are people who make $20,000-$50,000 per month. They could save up for a brand-new car in less than three months. But do they? No. They get a car loan. Or they just decide to go ahead and rent it for three years. It's because they have no patience.

Look, if you can't wait three months to buy a car, how are you going to be able to wait a decade or two for your investment strategy to pay off? Stocks make money, but they don't have a positive return every year. In fact, sometimes they have pretty crummy returns for years—sometimes a decade or more. But in the end, the patient investor wins.

You would think that doctors would be experts at delaying gratification and waiting patiently for things to occur. That is not my experience at all. Most doctors come out of training and the first thing they do is buy a big fat doctor house and a couple of flashy cars on credit. They invest the same way they budget. That's why most doctors aren't successful investors. It takes time to be a successful investor. For most people, it takes multiple decades to build a nest egg you can live on for the rest of your life. Staying on a single task for multiple decades requires patience.

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#6 Discipline

You might logically understand the proper thing to do in a bear market. But passing through a bear market is not an intellectual exercise. You don't do it with your brain. You do it with your gut. After a few sleepless nights worrying about losing their nest egg, many investors do precisely the wrong thing at precisely the wrong time: they sell low. Doing that just a single time late in the accumulation years can torpedo your entire financial plan. Jack Bogle said:

“Stay the course. No matter what happens, stick to your program. I've said stay the course a thousand times and I meant it every time. It is the most important single piece of investment wisdom I can give to you.”

You must stick with your (well-designed) plan through thick and thin. That matters far more than what the actual plan is.

#7 Optimism

Pessimism is sexy. It sells books and magazines and attracts eyeballs and advertisers. But if the history of investing had a title, it would be, “The Triumph of the Optimists.” The pessimists are almost always wrong, at least in the long run. In the long run, humanity makes progress, businesses earn more money than before, and every generation has a better standard of living than the last. As an investor, you will frequently hear or read commentary from the doomsayer crowd. The sky is always falling for them, and they are very convincing. But in the end, the optimists end up with more money.

These seven traits are critical if you want to be a successful investor. Develop them as best you can.

What do you think? Which of these seven traits is your strong point? What is your weak point? What can you do to turn a weakness into a strength?