If you have just started investing, congratulations!
You have embarked on an exciting journey to grow your wealth and better prepare yourself for retirement.
However, you may be wondering how you can become a successful investor who can maximise your gains while minimising losses.
Even veteran investors may be curious as to how to achieve a solid long-term investment track record.
The secret lies in observing and learning from experienced master investors.
We distilled the knowledge from such investors to present to you three key attributes you need to have for long-term investment success.
Risk before reward
Many investors rush into investments because they are enticed by the potential gains.
However, they neglect to consider the risks associated with these investments.
Risk and reward are two sides of the same coin, in that one cannot exist without the other.
When investing, you should carefully assess the risks first before committing your money.
Remember that when you take care of the downside, then you don’t have to worry about your upside.
Successful investors do a comprehensive risk assessment by identifying the myriad ways in which the investment can go wrong.
While this assessment may not cover unexpected, black-swan events, it nevertheless gives you an idea of what to expect and tempers your expectations for the stock.
An example may include a high-flying stock such as Nvidia (NASDAQ: NVDA).
While the GPU manufacturer is a clear market leader in its field, you need to ask yourself if its valuation may be excessive.
Are there also risks of competitors catching up with the technology and chipping away at Nvidia’s market share?
By reviewing the economic, competitive, and corporate risks associated with an investment you are eyeing, you are in a better position to make intelligent and informed investment decisions.
Focus on the long-term
When investing, it’s also recommended that you do not obsess over short-term price fluctuations.
Volatility is part and parcel of investing in the stock market and any given stock can experience sharp price movements without good reason.
Traders may focus solely on price movements, but as an investor, you should focus your attention on the business instead.
Businesses need time to implement business development initiatives and execute growth plans.
If the business possesses a strong competitive edge that allows it to sell its products and services, it can generate steadily higher revenues and profits.
Such businesses will also generate more free cash flow and may pay out higher dividends in line with better profitability.
Investors will then bid up the shares of these companies as they become more valuable, netting the patient investor attractive capital gains.
Time is needed for quality companies to grow their earnings and become more valuable.
By focusing on the long term and keeping your eye on the business, you can ensure that your investment portfolio also grows in line with the fortunes of these strong businesses.
A great example is iFAST Corporation (SGX: AIY).
The fintech grew its net profit from just S$9.5 million in 2019 to S$66.6 million in 2024.
Its assets under administration have also soared from S$10 billion to S$25.01 billion over the same period.
Its share price has soared nearly 10-fold, going from S$0.78 back in March 2020 to the current S$7.38.
Control your emotions
The last and probably more important attribute you need is the ability to control your emotions.
This may sound simple but when there is hard-earned money involved, you will naturally feel a range of emotions when putting it to work.
The two most common emotions are greed and fear, and these alone can wreak havoc on your investment portfolio.
Greed manifests itself when share prices are on a tear.
When investors chase a high-flying hot stock, greed may cause them to abandon logic and just join the madness of the crowd.
As a result, you may throw caution to the wind and sink more and more money into a stock where nothing can go wrong.
The problem comes when the party is finally over and the stock crashes back to earth as investors adjust their expectations.
When this happens, you may suffer a devastating loss if you had bought at lofty prices.
Meanwhile, fear is the enemy of the rational investor.
When share prices plunge, fear leads to panic, causing you to sell and lock in your losses because you worry that prices may fall further.
This knee-jerk reaction could cause you to crystallise your losses even though the business may be undergoing a temporary hiccup.
Remember that share prices can gyrate violently for inane reasons such as the company missed analysts’ earnings per share expectations by one or two cents.
If you let fear control your actions, you will inadvertently be held hostage by the whims of the market.
Instead, the right thing to do is to control your emotions and use logic to assess the situation.
Most of the time, a share price fall may not be a good reason to sell your position as the underlying investment thesis may remain sound.
If you assess the situation well, the plunge may even turn out to be a great opportunity to accumulate the stock on the cheap when others are dumping it.
So, remember to keep your emotions in check when investing to enjoy a favourable outcome.
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Disclosure: Royston Yang owns shares of iFAST Corporation.
