What Makes a Good Investor and How to Become One

It’s not at all complicated to be a good investor. You don’t need to have a Ph.D in finance or math in order to make money from investing. It’s behavioral characteristics that separates the ones who make money from investments than the ones who loses money.

These days, with the popularity of commission free trading apps such as Robinhood or WeBull, it’s easier than ever to buy and sell stocks. What an exciting time to be alive! However, with the opportunity to make money through investing, there’s an opportunity to lose money as well.

Most people who lose money while investing have very common characteristics that make them lose money. Bad investors are all very impatient, want to time the market, think they are smarter than everyone else, and take on too much risk for their personal risk tolerance levels.

A good investor doesn’t try to beat everyone else. They know that they don’t need to. When I first started investing, all I did was buy and hold my investments. I consistently contributed to my investment accounts and automated the process. Currently, my brokerage accounts total approximately $370,000 that I started from $0.

You can make tens of thousands, if not hundreds of thousands of dollars as well. It will take some time. However, one day you will thank yourself for putting in the time. The tax codes immensely favor capital over labor where many advantages are given to investors rather than people who provide goods and services.

Therefore, it is in your best financial interest to start investing and generate passive income sources. When one day, your passive income surpasses your active income, it means that you have made it. Complete and total freedom over your time.

What Makes a Good Investor?

So when we talk about a good investor, they are the ones who SMASHES that social share button and posts to their favorite social media! Your friends could be struggling with their investments and wanting to go into get rich quick stocks. While it may work out for some, it doesn’t work out for most people.

Therefore, why not get rich together with all of your friends? We have the potential and the power to grow wealthy together. There’s no need hoard information just for yourself. Let’s help everyone out so that we no longer have to work for a living!

So with that said, let’s get into the characteristics of what makes an investor good. Before I go any further, it’s important to recognize that this is NOT investment advice. All of this is for informational purposes, only. Make investment decisions by doing your own research.

1) A Good Investor Focuses on the Long Term

Good investors completely recognize that the short term is meaningless. It’s just volatility that doesn’t really mean that much over the long term. A $10,000 win or loss one day does not mean consistent winnings or losses throughout the rest of time. What matters is the long term.

Over the long term, the trend for the stock market has generally been up. Remember that the S&P 500 never returned a negative result over any 20 year period. Why would you want to bet against results that never had a loss in any 20-year period? It certainly could happen, however, is it likely?

You can decide that for yourself. I personally enjoy investing into a vehicle that has never lost money over the long term. As long as you don’t care about the daily fluctuations of the stock market, it has a higher chance of working than not.

The ones who sold at the bottom of the COVID-19 crash missed out on one of the most marvelous recoveries people have ever seen. Forget about the short term fluctuations and think about the long term.

2) A Good Investor Loves Boring Investments

With the rise of WallStreetBets, investing has now been getting into the casino category. People love wild and high flying stocks such as GameStop or AMC. Why is that? It creates the most excitement. We can’t help but feel enamored at the daily 10 – 100% swings in a single day. The adrenaline rush is real.

However, a good investor doesn’t care about those wild and exciting “investments”. They care about proven investment vehicles that provided long term results. Broad market index funds that encompasses and represents the entire economy are attractive to them.

Don’t equate “boring” with “bad”. What boring usually means is stability. Stabilized results have done very well versus investors who try to be smart and try to beat everyone else. Would I love to YOLO $100,000 into a GameStop play just for fun? I would.

However, the ones who can afford to throw around money like that for fun are usually billionaires or very high net worth millionaires. Unless you are already there, consider boring investment vehicles much more seriously. You’ll have a much better time with smaller chances of a heart attack.

3) A Good Investor Doesn’t Mind Short Term Sacrifices

Remember that two years ago led to your life today. That means anything you do today affects your life two years from today. To prepare for the future you two years from today, you will need to sacrifice in order to build up your savings and money army. Practice delayed gratification and sacrifice today for a better tomorrow.

It will be completely worth it. Throughout your journey, you will be questioning why you are sacrificing so much. If that is the case, then it is recommended to put your foot off the gas a little bit and live it up. I sacrificed my financial life for a couple of years because I wanted to get to financial independence very quickly.

For about two years, I felt like I was in poverty. However, I can honestly say that it was completely and well worth it. These days, I feel like my money armor is almost invincible. If I get fired tomorrow, I have no need or worries. Why? I can live on a ramen noodle budget for the rest of my life without having to lift a finger.

Short term sacrifices are well worth it if it means you can propel and springboard into huge heights where no one can even touch you.

4) A Good Investor Pushes Emotions Aside

Throughout your investment journey, it will be VERY turbulent. The thing about investing is that it is not smooth sailing. It will tug at your emotions like you’ve never been tugged before. A good investor learns to ignore these things. They focus on other things that matter more.

They’ll ignore the turbulence and just get back to work as if nothing happened. There are many investing biases that you have to be mindful of when putting money at risk. Learn those biases about yourself. Then learn to correct these biases. Whether we like it or not, money is an emotional subject.

When emotions are involved, we make decisions based on our irrational emotions. A horrible recipe for your financial life. Move those emotions out of the window. In 20 years, it will be unimaginable what your money can accomplish just by itself. With no additional work

How to Become a Good Investor

So now that you know what it takes to be a good investor, let’s go over how you can become one. Ph.D’s are notoriously bad at investing. Ever heard of long term capital management? They’re a group of Ph.D Mathematicians and supposedly the smartest people in the entire world.

It is no longer alive today. That’s great news! What that means is that there is absolutely no need to be smart to invest well. All you need is the right temperament and good behaviors to keep you moving forward.

1) Learn to Forget About Your Investments

Whenever you put money into an investment, it’s in your best interest to just forget about them. Yes, it is a good idea to use Personal Capital and keep tracking your net worth changes over time. However, if you’re the type to get emotional about your investments, an alternative is to mentally forget that money exists in the first place.

You don’t have to link your brokerage and investment accounts to Personal Capital to be aware of the day to day fluctuations. Ignorance is bliss, especially when it comes to the movement of your money. A good investor will forget about the existence of their investments in the first place.

They understand that the market will generally return an average 7-10% a year over the long term. Ever since I started investing in my 401k, I have never sold my investments ever. Not once. Not during the end of 2018, not during the COVID crash, not once.

Good investors will just let their money ride over decades and decades.

2) Shut the Media or “Guru Advice” Out

The media’s sole incentive is to drive more clicks to their website to generate advertising dollars. They will word their headlines in such a way to tug at you emotionally. There isn’t a single media news outlet out there who doesn’t have headlines that isn’t emotionally effective.

By the same token, the “investing gurus” that you see with their rented mansions and Lamborghinis just have courses to sell you. Shut these people out of your life. A good investor doesn’t let emotions get in the way of business.

When one side is attempting to emotionally manipulate you into doing something, that’s when you’ll get in trouble. Emotionally convincing statements are quite effective. No matter how much we want to believe we are logical, we are more emotional than logical. Both men and women.

Therefore, shut out people who are vying and trying very hard to get your attention. It will be far more expensive than the time you give them.

3) Don’t Try to Beat or Time the Market

The stock market has returned an average 7- 10 % annual returns over the long term. Are those results guaranteed? Nope. However, it’s just about the most guaranteed way that you can get there. A good investor doesn’t try to beat the average. A 7 – 10% annual compounded return is phenomenal.

When I was young, I thought you needed to double every year. Otherwise, what’s the point? I needed to have managed my expectations. I’m glad that I shifted my expectations to be satisfied with a single digit return. A positive return, even at 1%, is mountains better than a negative return, even at 1%.

You can definitely have a “play portfolio” with a minority allocation to see if you can beat the market. However, the bulk and the vast majority of your investments should be riding the wave with the market. There’s absolutely zero need to try and beat the market, anyway.

You are trying too hard to do something that doesn’t need to be done. Be happy with a 7 – 10% yearly return.

4) Be Honest With Yourself

To be a good investor, you have to be brutally honest and figure out who you actually are. I see my friends say “oh, I’ll hold it over the long term know”. Do you know when they say these words? Right after a huge major crash and they lose money. They end up selling that stock in a couple of months after it recovers.

They subsequently miss out on the returns that happen on the backend. Be honest with yourself and actually figure out if you will hold over the long term or not. Don’t lie to yourself. Remember that we are less likely to achieve our goals once we say them out loud.

It’s an interesting psychological phenomenon that happens. Don’t let that be used against you. A good way to stop that from happening is to actually be honest with who you are. I’m definitely guilty of succumbing to a lot of the psychological investing biases that are out there today.

However, I learn from my mistakes and don’t let that affect me over the long term. Be honest with who you are as a person.

The Results of Being a Good Investor

These are the results that can happen for a good investor. Notice that there is a lot of losses and wins throughout the journey. It is not all smooth sailing. Some days, you will lose a lot of money to get back to where you were six months ago. Some days, you will make more money than ever possible.

However, as long as the overall trend is in the direction you want to be in, everything works out by the end. During the first couple of years of investing, I actually felt very frustrated at how slow my progress was. A 1% return in the stock market was making me $100.

Which is a good chunk of money but nowhere near to the scale of what I wanted to achieve. I am proud to say that a 1% return in the stock market will net me to keep me afloat for a couple of months. An impactful amount. However, in order to get there, you need to start somewhere.

Consistent effort will get you to places that you never thought were possible to get to. If you told me five years ago that I would have this much money to work with, I wouldn’t have believed you. Everyone has the power to get there. The question is, will you put in the work, hours, and effort?

It’s Not Hard to be a Good Investor

I would never categorize myself as smart. I would categorize myself as someone who worked as hard as I could and lived as cheaply as I could. Therefore, if I can be a good investor, you can be one as well. Investing is nowhere near close to rocket science.

Furthermore, there are a wide variety of free and accurate resources out there for you to learn from. With the internet, there’s no telling what you can accomplish. There are people who don’t even know what a 10-K or a 10-Q is that are making more money than professional investors out there.

Hedge funds are notoriously famous for consistently underperforming the S&P 500. These are the people who are getting paid millions of dollars to underperform. Don’t be intimidated by the logical fallacy known as the “appeal to authority”. Just because you don’t have a fancy Master’s degree, does not mean you are worse.

A good investor doesn’t necessarily have a padded pedigree to impress others with their “prowess”. All they do is consistently invest in good stocks and ride it out over the long term. Remember that there’s a millionaire janitor out there who probably made less money than you over a year from a day job, even after inflation adjustment.

If he was able to amass a fortune of that scale, why can’t you? The only person who is keeping you from success is you. Contribute a percentage of your paycheck to the markets and marvel at the eighth wonder known as compound interest.

It will amaze you and show you things that you didn’t even think were possible. I know it’s amazed me more times than once and it will continue to amaze me.