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Characteristics of Successful Investors
by Tom Madell, Ph.D.
http://funds-newsletter.com

I have written many times about something that most
investors largely ignore: The role of the investor's own
characteristics in determining how well he/she does as an
investor. Perhaps this statement seems a little abstract
and therefore it is easy to disregard it especially coming
from someone such as myself whom most readers probably have
yet to hear of. But when you realize that similar
statements have come from three of the world's most
successful stock investors, Peter Lynch, Warren Buffet, and
John Templeton, perhaps people may want to pay a bit more
attention.

Peter Lynch, in his book "One Up on Wall Street", discusses
the characteristics of successful investors. As most
investors are aware, Lynch served for 13 years as manager
of America's top ranked mutual fund at the time, Fidelity
Magellan. An investment of $10,000 in the fund in 1977
would have grown massively to $280,000 by 1990. In this
book, Lynch states: "Ultimately it is not the stock market
nor even the companies themselves that determine an
investor's fate. It is the investor." And: "It is personal
preparation, as much as knowledge and research, that
distinguishes the successful stock picker from the chronic
loser."

Lynch further states: "The key to making money in stocks is
not getting scared out of them ...;" he continues: "in
dieting, as in stocks, it is the gut and not the head that
determines the results."

Lynch advises us to try to examine our own behavior and
attitudes before we enter into stock investing. Answer
these questions: Are you investing for the short-term or
the long-term ? How will you respond to a sudden and
unexpected severe drop in prices of your stocks? (We should
all know much better where we each stand on this now that
it has been happening, although not so suddenly, for a long
time.) Without thinking about this beforehand, you may lack
the necessary conviction to avoid becoming another "market
victim", someone who abandons hope and the ability to
reason things out at the worst of moments, selling out at a
loss.

The above statements, although written by Lynch for those
who invest in individual stocks, are nevertheless just as
valid for mutual funds investors.

What additional qualities did Lynch suggest make for a good
investor? Lynch lists the following: patience, self-
reliance, common sense, a tolerance for pain, open-
mindedness, detachment, persistence, humility, flexibility,
a willingness to do independent research, a willingness to
admit mistakes, the ability to ignore general panic, and
the ability to make decisions without complete or perfect
information.

Some final words from Lynch are perhaps relevant: "... it's
crucial to be able to resist your human nature and
your 'gut feelings.' It's the rare investor who doesn't
secretly harbor the conviction that he or she has a knack
for divining stock prices or gold prices or interest rates,
in spite of the fact that most of us have been proven wrong
again and again. It's uncanny how often people feel most
strongly that stocks are going to go up or the economy is
going to improve just when the opposite occurs. This is
borne out by the popular investment-advisory newsletter
services, which themselves tend to turn bullish and bearish
at inopportune moments."

Warren Buffett, perhaps the world's most hallowed investor,
learned that the successful investor is often the
individual who has achieved a certain temperament. His
teacher, Benjamin Graham, taught him that the investor's
worst enemy was not the stock market, but oneself. Thus,
despite superior skills in mathematics, finance, or
business acumen, if you can't first master your own
emotions, you are not well-suited to best profit from your
investments.

John Templeton, a masterful international investor,
believed that adopting a flexible, open-minded point of
view to fit different times, countries, and investment
climates, was the investor's greatest need. He stated that
the best value will be found in stocks that are completely
neglected and that other investors may not even be aware
of.

As applied to fund investing, this means that you should
not always expect that the kinds of funds most others are
investing in will always be the best places to be. Thus,
not only have bond funds far outpaced stock funds in the
last few years, but categories of bond funds that most
people may not even be aware of (such as inflation
protected and international bond funds) have outperformed
even the staple for most bond investors, funds that invest
in corporate bonds or U.S. Treasury issues.

Templeton admits he makes constant mistakes, but because he
is heavily diversified, the damage is limited. He advises
not to trust rules and formulas. The world of investing is
always changing leaving the investor who sticks to time-
honored truisms sadly way behind. Everything has its
season, as the classic Byrds song "Turn! Turn! Turn!"
reminds us. Since the world is constantly changing, the
successful investor too must change when required.

For more information on whether you have the
characteristics needed to be successful as an investor, see
my web site shown above.

This article courtesy of http://www.investment-index.com.
You may freely reprint this article on your website or in
your newsletter provided this courtesy notice and the author
name and URL remain intact.

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