For most people who have bought shares before, investing is a simple activity. All it takes in today’s context is just a few clicks or a few swipes and taps on the screen. I would say that that description is nothing but buying and selling or if you like, trading in a particular product such as shares or bonds. So if that is not investing, then what is? And if investing is not merely buying and selling then how then can a person become an investor? Fret not, I am not trying to make the title investor like that of a medical doctor or any other noble profession. In this week’s post, I will attempt to describe the true traits of an investor so that more people will be able to discern information passed on to them that seeks to derail them from becoming an investor.
Investors aim for targets not dollars and cents
In short, investors never focus on the actual gains of their investments. That is not to say that they are not doing well in their investments. For example, no one would deny that Warren Buffett or Charlie Munger is a great investor of our times. That said, even though they manage to outperform the US indices and become billionaires, they have never flaunted their successes in terms of dollars and cents. Instead, they focused on CONSISTENT results over time. Unlike pseudo-investors who might have struck “lottery” in the markets, genuine investors will never refer to those moves as though they were prophets or geniuses as they understand that investing is not about striking big once in a while but seizing every legitimate opportunity when they arise.
Investors really believe in the companies they invest in
Buying stocks in hope that their prices would rise is nothing more than gambling. However, such moves have been long ago conflated as investing to the rest of the world. Although there is no distinction in the execution of that “buy” order, the psychology behind both buy orders is completely different. The difference lies in the mentality of the buyer. Investors buy into the company for its potential for growth, reasonable valuation, and management capabilities. For non-investors, all it takes is a nudge from a “reliable source” for them to pump varying amounts of money into the market in the hope for the price to appreciate. The key difference between the two buyers is that the non-investor would only hope that the price of that stock to go up however, an investor would be completely fine if the price falls further, as they will be able to accumulate more stocks at a lower price.
Investors are never reactionary
Investors are not fooled by volatility due to shocks to the systems such as news items or short-term financial performance, neither do they chase after pump and dump rallies or greed-fuelled rallies. Now, there will be exceptions from time to time, when legitimate investors also commit such acts but as a rule, it would not be a staple move for real investors. This is pointed out as one of the main distinctions because non-investors are extremely reactive in nature because they are overly focused on short-term results and gains. Such extreme moves not only lead to stacking realized losses (often unshared or hidden) but also prevent them from cultivating resilience and the required temperament to manage larger sums of capital.
Closing Thoughts
I would say that investing is really not about making fast gains but instead earning a share of a company’s performance in the future. That mentality makes a huge difference for investors because we do not want companies to be incorrectly valued for extended periods of time. That includes companies being overvalued and forming bubbles. Given a choice, an investor would exit at a decent price rather than hoping for the rally to persist due to greed and sensationalism generated by various social media platforms and other sources. Hopefully, this post can shed some light on investing to those of us who are unsure about the difference between buying blindly and investing.
