What makes a successful investor?

What in your opinion are the key qualities of a successful long term investor?

High intellect, interest in stocks, reading lots of Annual Reports and research reports, sound understanding of company valuations and superior stock picking skills, experience in the stock market?

Till a couple of years back, my answer would have been yes to all of the above. But today, I believe that the most important quality that is needed to succeed as a long term investor and to derive superior risk adjusted returns, is to first understand ourselves.

This I believe is one of the strongest points in favor of successful people in any walk of life. Take for example Warren Buffett. Why has he succeeded so well over so many decades? It's cause he knows himself and his strengths and weaknesses and always plays to his strengths. Or say, why inspite of being the greatest batsman in the world, Sachin Tendulkar was not a very successful captain?

Only when we truly understand ourselves and our individual personality and its strengths and weaknesses, can we expect to succeed in any endeavour that requires a fair degree of skill and discipline.

Most of us who start investing in stocks/equity mutual funds do so because we see and read about highly successful and rich people like Warren Buffett and Rakesh Jhunjhunwala and how they have made their billions by becoming successful investors and want to try and emulate them. Or we read the newspapers and watch TV which tells us investing in equity markets is the best investment option in the long term, especially in a growing economy like India. I know this happened to me and most of the people I know who are even marginally interested in investing in stocks/equity mutual funds. We start investing in earnest especially when the stock prices are going up and our friends and cousins are raking in the moolah.

Ask yourself some of the following questions:

1. What is my personality type? Am I a cool, calm thinker in my personal life or do I generally get flustered whenever anything happens that I don't like or expect?

2. Am I the kind of person who easily believes others or someone who thinks things thru himself?

3. Do I get easily influenced by whatever is the latest fad/opinion/hot product around?

4. Do I believe that the last brilliant speaker/writer I came across is correct and that I should change my philosophy/thought process completely to what he has suggested?

5. How many times in the last few years have I kept my New Year promises?

6. Do I give too much importance to what has happened in the recent past?

Is your investment style a fit for your personality style? If yes, your chances of earning high returns are higher.

I am not trying to say that since an investor has a very hyperactive personality style, he should keep jumping from one stock to the other and that such a strategy will make him big long term returns. What I am trying to say is that something like value investing may not be suitable for him and he may sell out from a small loss making stock too soon since he has no patience to see a temporary loss. In fact, such an investor may be well advised to have a long term mutual fund SIP plan, where he does not let his impulsive feelings affect his investing.

Many of us would think that the above questions are all HR bull shit that has no role to play in investing success. I used to think the same till a little while back, but not any longer. Till the time we do not have a fair degree of congruence in our personality and investment styles, we would struggle to make serious wealth in the long term. Sure we can have a few years of success, but I would be surprised if any investor with a mis-match in styles would succeed in the long term in generating wealth.

You know for a long time my personal answer to most of the above questions and my investing style was completely the wrong match. And the reason for the same was that I never understood this starting point properly and would get frustrated whenever I made mistakes.

If you have not given these points any serious consideration before, please take some time to do the same. I think it can help you immensely not only in your personal life but also in your investment life. Once we are better aware of our strengths and weaknesses, we can work on how we plan our investments so that we do not sabotage ourselves (like stopping a SIP in a market downfall) at exactly the wrong time.

Please let me know your thoughts/opinions on this topic.