Monday, June 4, 2007

Successful Investing

Someone on the Yahoo Group asked a very important question, "What skills are needed to be a successful covered call investor". I thought I'd post my response here as well, for those readers who have not joined the group.

I don't believe it takes great intelligence to be a successful investor. In fact, sometimes too much knowledge is a bad thing. Success is not a function of how smart you are or how much you have applied yourself academically. Look at me, I never went to college and yet I have a successful career as a programmer, and I'm having success as an investor, and I ain't that smart ;-)

Skills can be learned, but I believe that success in investing comes down to the following personal attributes:


You must be passionate about investing and enjoy analyzing companies. You should do it because it's fun, not because of the money you can make. Don't let the money blind you. This is serious business and if you're not passionate about it, you won't give it your all. Be an avid reader and learn all you can about investing from those who have been successful, like Benjamin Graham, Warren Buffett, Joel Greenblatt, David Dreman, Mohnish Pabrai, etc. You'll gain invaluable insight learning from these successful investors and begin to develop your own market philosophy.


You must have confidence in yourself, your methodology, and your ability to succeed. Research different methodologies and modify them so as to make them your own. Self-confidence comes from developing a methodology that YOU believe in. It doesn't come from trading someone else's methodology. It's easier to have confidence and be able to follow your own rules then someone else's.


Attitude is how you deal with the inevitable adverse situations that occur in the markets. Not all trades will work out as planned. You must have a positive attitude, even in the face of adversity. Never give up. Once you've dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you've done something once, it's a repeatable act. That knowledge is a powerful weapon and can make you a much stronger person and better investor.


You must believe that you can actually do it. Everyone is capable of being a successful investor if they truly believe they can be. You must believe in the power of belief. If a person's will is strong enough, they will always find a way. If you admit to yourself that you truly don't have the will to win at this game, then put your money into an index fund and go do something you love.


You must have the discipline to control your emotions and follow your trading plan without question. This is the culmination of all the previous attributes. If you are passionate about investing, have confidence in your method, have the right attitude, and believe in yourself, you'll develop the discipline to follow your trading plan.

That's it. Sounds easy doesn't it? But it's not. Making personal changes is probably the hardest part of being a successful investor.