5 Mental Traits of Successful Investors

Looking to trade stock successfully? The key to successful long term investing may be less about how intelligent you are, or how well you can anticipate market movements based on short term market vagaries, and more about the mental traits and characteristics with which you were born.

While there is no such thing as a "perfect investor" and we are all prone to mistakes stemming from our own human flaws, many investors have been able to succeed over the long term. The successful long term investor likely possesses at a minimum, the following 5 mental characteristics.

Curiosity and Diligence. A mental curiosity and the desire to be consistently challenged mentally are some of the most important traits of any investor. In the investment game, knowledge is not only power, knowledge is money. But curiosity is not always enough. The successful investor must possess a diligent attention to detail that will allow her to patiently review news coverage and balance sheets for a mental edge on the market and a corporations long term potential success.

A Basic Understanding of Finance. It is safe to say that without a basic understanding of finance, it will not matter how curious or diligent of an investor one is. At a minimum, the successful investor will be able to read a corporate balance sheet and understand how the financial markets work to include the effects of interest rates and inflation on long term stock and bond returns.

Conservative and Realistic Expectations. Despite the infamous words of Gordon Gecko in Wall Street, greed is not always good. In fact, for investors greed can set one up for absolute failure in the persistent pursuit of still higher, unrealistic returns (think the internet boom in the 1990's). A successful investor will understand the difference between a fair valuation and a healthy rate of growth, and a speculative boom.

Emotional Stability. For many years, leading research indicated that the markets were "rational". But, according to a recent study conducted by researchers at Harvard Business School, most investors are prone to making irrational decisions during times of economic hardship or financial stress. A successful investor understands this characteristic of human nature and will invest contrary to the herd while seeking greater long term returns due to the irrational markets. The successful investor, in the immortal words of Warren Buffet will be "greedy when others are fearful, and fearful when others are greedy."

An Ability to Take Calculated Risks and Cut Losses. The successful investor takes calculated risks. Sometimes these risks result in a financial loss. The successful investor at once does not invest money they cannot afford to lose, and also knows when to sell stock at a loss. Selling for a loss, to the successful long term investor, is seen as both a tax benefit and a reduction in long term investment losses.

Photo By: Wagner T. Cassimiro