Based on my experience (and readings on investors I admire), an investor requires the following:
- Sensible investment process that fits his/her personality (whether it is under fundamental or technical analysis).
- Portfolio allocation skill
- Investment Psychology awareness
Item number 3 is often neglected.
Benjamin Graham defines an intelligent investor as “patient, disciplined, and eager to learn.” An intelligent investor is a trait more that of the character rather than in terms of IQ.
We are lucky that we do not need to “fall” so hard to realize how important psychology is in investing. All we need is to learn from the psychological mistakes of other people.
Follow the story of Bob:
In my opinion, playing any single player sport (in my case tennis) is the fastest way in improving psychological awareness since you will artificially subject yourself to the same psychological and emotional condition that is present in investing. Single player sports require you to be composed psychologically and handle your emotions well, especially if your intention is to win. Learning not to be distracted by the crowd, the noise, cheers, who were watching and what your opponents gestures are already psychologically and emotionally challenging.
I encourage those who want to harness their emotions and attain psychological composure to watch Roger Federer play. Roger Federer is called perfection in tennis for many reasons but for me it is because of how he maintains his psychological composure and handles his emotions during the game. Djokovic, the current number one, screams and smashes his racket every time he misses a crucial shot but that is very understandable because that is the norm. All top players do that. What is not normal is Federer’s.