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What separates great investors from investors from good investors

05 Jan 2023

Have you ever wondered as to the unique characteristic of great investors? Are great investors born or are they made? Is there a formula on how to become great investor in the Indian context? Obviously, a great investor is not just about hard skills. After all, hard skills can be easily acquired or learnt. It is something beyond that. It is that delicate convergence of soft skills, mental strength and a unique degree of innovativeness and ability to think out of the box. Let us try to understand some of the qualities required for successful investing. What is that something that distinguishes a great investor from a good investor?

Great investors are avid learners. That is one feature you will find in common among all the successful investors across the world. They are avid readers, avid learners and very quick to grasp their mistakes. They try to imbibe information and knowledge from a variety of sources; both patent and latent. That is what gives them the edge; the ability to process mountains of information and make sense out of it.

Great investors are sceptical without losing on their optimism. More often than not, if you present an idea to successful investors, they will try to play the devil’s advocate. They are not being cynical of your idea but they are just trying to examine all angles to the story. That is a very outstanding feature that is common among a lot of successful investors; the ability to be sceptical and critical of any idea without getting cynical.

Great investors treat news and information at arm’s length. How do you separate the wheat from the chaff in an era of information overload? Obviously, you need to treat information as in input without treating it as an output. Most great investors have mastered the fine art of focusing on information and leaving out the free opinions available in the market. That is what sets them apart!

Great investors always focus on value and on bargains. It does not matter whether you are in a bull market, bear market or a flat market. The core focus of a great investor is always on the moat in the company and the margin of safety in the price. Great investors are almost obsessed with finding great buying ideas at great prices. Treat stocks the same way as you will treat your Christmas bargains, is the motto!

Great investors are great simplifiers. You can never be a successful investor if you try to complicate things unnecessarily. Great investors cut through the overload of data and get down to the point quickly. For example, if you are looking at a company making dog biscuits the first question to ask is whether the dogs will like them. That is the crux of the argument which will create value for shareholders.

Great investors put the stock markets and the investment process in perspective. One of the unique characteristics of great investors is that they draw a line between the process of investing and the outcome of investing. You need to put these 2 things in perspective. If your process is right then your output is going to be good. If the output is not up to the mark then you need to rethink the investment process. That is perspective!

Great investors are extremely methodical and meticulous. This could be an extension of the previous point but this is slightly larger in context. We are not just talking about the investment process but also about the entire approach of the investor to stocks. You will find them meticulous in everything from analyzing stocks to inferring ideas to documenting their process to following up on changes to their tax filings. For the great investors being meticulous is a state of mind and that is the only way they can be.

Great investors are great experimenters and quick learners. You can never be a great investor if you are unwilling to experiment with new ideas and new processes. A great investor will never shun a nanotechnology stock or an artificial intelligence stock just because it is esoteric. The essential approach would be whether the technology has the potential to disrupt and what could be its implications.

Great investors know when to do nothing. Just don’t underestimate this point. Great investors are not just about buying and selling at the right time. They also know when it is more profitable to do nothing at all in the market. That calls for tremendous mental discipline and that is what separates the great investor from the good investor. More often than not, their decision to do nothing is itself extremely profitable.

Finally, they practice discipline and slog it out. You will hardly find a highly successful investor who is not hard working and who is not disciplined. Whether you are a trader or an investor, discipline lies at the core of the entire stock market interaction. You will find great investors literally married to the idea of finding value in stocks and consistently scouring through mountains of data to find investment ideas.

To sum it up, great investors are not born but they are made. It is the combination of these 10 factors that will put you on track to become a great investor!

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