7 keys to becoming a successful investor

i Investment Goal: This could be summed up as your reason for investing. You have to ask yourself the question “Why do I want to invest?” Because without understanding why you are taking the decision to invest you may not know for how long to hold such an investment or when you have achieved your aim. There are many reasons for investing such as for income, financial independence, retirement, nesting for business capital etc. Your understanding of your reason for investing would determine if you are going for a long term, medium, or long term. It would also help you to take a decision on what you are investing in and your target profit for any investment.

ii. Psychology: The game of investment is not played with emotions। It is a known fact that every market in the world is ruled by the emotions of greed and fear. Most losses encountered in investments result from these two emotions. People have lost fortunes they made as a result of holding on to an appreciating investment believing that it would keep going up (greed) only to watch it go down and sell off due to fear when the capital would have been almost wiped out. Some without recourse to fundamentals sold off for the fear of depreciating value and at losses investments which later went on to appreciate substantially. Never allow your emotion to have an upper hand in any investment you undertake. Aim at having a detached view of any investment you make, that is the successful investor’s mindset.

iii. Experience: Knowledge is of utmost importance in investment। And the best way to gain knowledge is by experience. Experience, they say, is the best teacher. No matter how many books you have read or seminars you have attended on investment, you cannot say you have learnt the ropes, at best you only possess limited knowledge until you are involved in actual investing. Based on knowledge, investors can be classified as beginners, knowledgeable or experienced. For a beginner investor, it is necessary to read books and gain fundamental knowledge before engaging any type of investment. However, it is wise to gain experience by commit funds you can afford to lose once you have gained adequate fundamental knowledge. The knowledgeable investor should commit to continuous learning and experience by reading and research. The experienced investor still has room for improvement by utilizing the feedback from both profitable and not so profitable investments to refine investment style and methods.

iv. Income/Expenditure ratio: There has to be fund from earned income before there can be any investment। Funds for investment purposes can only be available when living and other expenses have been taken care of. To be a successful investor, you have to build your income streams and cut down your expenses. In other words you should have a high income/expenditure ratio. Before spending money on any thing consider the following, Do you really need the item? Are there cheaper and even better alternatives? Can you wait a little longer before acquiring the item? Remember, one of the success secrets of self made millionaires is delayed gratification. Always look out for ways and means of creating multiple streams of income. Above all, cultivate the habit of saving at least 10% of your income, by so doing you will have funds for investment purposes.

v. Investment Style: For you to succeed in any investment, be it stocks, real estate, forex, mutual funds, commodities etc, there is need for you to have a style, system or method for executing your investment। This involves your method of analysis, what factors determine entry and closure. It is also includes how long you hold any investment. Your style of investment is largely determined by your investment goals , knowledge and experience. Your style makes helps you make decisions on opening and closing deals, which instrument to invest in, when and how much. The most important factor in your style is your method of analysis, there are fundamental and technical analysis for investments generally, both the best analysis involves a good blending of the two methods of analysis based on you investment goal.

vi. Instruments: Instruments are your investment tools or vehicles। They are the things you invest in, such as stocks, indexes, funds, real estate, commodities etc. To be a successful investor you should have a broad knowledge of investment instruments because no instrument can be said to be the best on a general basis. The successful investor having this knowledge allocates funds to different instruments at any given time based on analysis, knowledge, experience and market trend.

vii. Discipline: This encompasses the attitude of the investor to all the factors that affect his investment. There is need for you as an investor to exercise good discipline in stating your investment goal, keeping your emotions under control, acquiring the required knowledge and experience, building an investment style and sticking to it, identifying the right instrument and allocating adequate funds at the appropriate time. This also involves solid money management techniques without which any gains made could easily be wiped out. In fact, developing strong discipline in the art of investment is half way towards succeeding.