The road to investment success is not an easy one.
But if you are willing to learn from your mistakes and keep trying, you can eventually get there.
We read about a lot of success stories of investors who persevered and who managed to retire comfortably.
That said, it’s useful to tease out the factors that enabled such investors to be successful in their endeavours.
Armed with the right traits and temperament, you stand a much higher chance of succeeding and building your pot of wealth.
Here are three traits you need to have to become successful in investing.
It may surprise you that optimism is an important trait for an investor to have.
Think about it, though.
The reason for investing is that you believe in a better tomorrow.
Companies are there to provide us with a plethora of goods and services, and many of them are continuously innovating to improve our lives.
Social media companies such as Meta Platforms (NASDAQ: META) are hard at work designing the metaverse to enable us to interact virtually.
Yoga sports apparel giant Lululemon (NASDAQ: LULU) works on comfortable sportswear with beautiful designs to help people to stay healthy.
And software-as-a-service companies such as Zoom Video (NASDAQ: ZM) and DocuSign (NASDAQ: DOCU) help to connect the world through videoconferencing and digital signatures, respectively.
The common thread underlying these companies is the willingness to believe that they can keep getting better at what they do.
And it takes patience for companies to grow, so optimism should be mixed in with a long-term orientation to ensure you get the most out of these investments.
The next important trait is a psychological one – the ability to stay calm when things are not going your way.
Suffice to say that this year has been a tough one for investors.
Surging inflation and rising interest rates have been the bane of stock markets.
The NASDAQ Composite Index has crashed nearly 30% year to date, and the broad-based S&P 500 Index has fallen into a bear market by declining by 21% year to date.
The barrage of bad news will make any investor stay on edge.
But amid the pessimism, it’s important to stay calm and focus on what’s important – the business behind the stock ticker.
Blue-chip stocks such as Venture Corporation Limited (SGX: V03) are still reporting healthy growth, with revenue and net profit up 25.4% and 24.1% year on year for the first half of 2022 (1H2022), respectively.
The contract manufacturer also generated a healthy free cash flow of S$39.9 million and paid out an interim dividend of S$0.25 per share, unchanged from the prior year.
Vehicle inspection company VICOM Ltd (SGX: WJP) saw its net profit rising by 9.2% year on year in 1H2022.
It generated S$9.6 million of free cash flow and paid out an interim dividend of S$0.0332, up from S$0.0304 a year ago.
Share prices may fluctuate wildly in the short term due to sentiment, but the important thing is to keep calm and not sell in a panic.
As long as the business continues to do well and generate healthy cash flows, its share price will eventually follow.
Understand the power of compounding
Finally, you must harness the power of compounding when you invest.
Compounding allows you to reinvest your dividends to generate more dividends in a cycle that can help you to grow both your portfolio’s value and stream of passive income.
Take the example of Mapletree Industrial Trust (SGX: ME8U), or MIT.
The industrial REIT declared a distribution per unit (DPU) of S$0.0349 for its fiscal 2023’s first quarter (1Q2023).
But instead of paying out this DPU wholly in cash, MIT offered unitholders the option to receive new units instead of cash.
This dividend reinvestment plan (DRP) will enable unitholders to receive their DPU in new units of MIT.
For 1Q2023, new units were issued at S$2.6097 per unit under the DRP.
Should a unitholder accept his or her distribution entirely in units, there will be more units used in the calculation of the total dividend when MIT declares its next DPU for 2Q2023.
Hence, this is a simple example of how you can compound the dividends you receive.
Another option is to take the cash dividend to purchase more shares of the company that paid out the dividend.
In effect, you are compounding your dividends to help generate more dividends, thereby accelerating the build-up of your passive income stream.
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Disclaimer: Royston Yang owns shares of Mapletree Industrial Trust, VICOM and Meta Platforms.