What are the skills and fundamentals of the most successful and greatest investors? This question is important for those who want to be an investor in the stock market and money markets.
Michael Aubusson, one of the most successful authors, academic and researcher of Wall Street stars, summarized the common skills and fundamentals of the most successful investors in the stock market in 10 points, which I will summarize in the following list:
1 Learn to read numbers in an accounting manner: Because all companies publish their information and performance in the form of financial statements, so you need to understand these lists and deal with numbers without complication or cost. There are many books for all levels that give useful lessons in learning to analyze financial figures, and seeing them is always a guarantee that will make you a successful investor in the stock market.
2 Understand value: The most successful investors focus on cash flow to calculate a company’s value, not on duplicates! This requires ensuring the sustainability of cash flows by understanding the company’s competitive position in the market, at any stage of the growth cycle, as well as management’s ability to employ funds. And here the investor creates a difference for himself!
3 Understanding the core business of the company: Simply understanding how the company will win? This understanding leads to an exploration of whether the company has a competitive advantage in the event that the return on invested capital is higher than the cost of funds, and is it a sustainable advantage? So, look for activities that are simple and understandable and avoid the complex.
4 Compare effectively: These are behaviors that require training. Investors constantly compare assets, sectors and companies, without being aware of behavioral errors in comparisons. For example, we tend to evaluate companies comparatively, because it is difficult to evaluate them absolutely! This is an arbitrariness coherent behavioral error
5 Think of possibilities: accepting all possibilities gives focus on decision-making. The best investors don’t care about the number of right decisions, but how much they profit from those decisions versus losses. Here is the difficulty, because the losses may outweigh the profits in terms of numbers and not value, and this is what the average investor avoids for fear of losses!
6 Effectively change your perceptions: In investing, what you now think is a testable hypothesis and not a treasure that you preserve! So, update your information and accept that it was wrong.
7 Beware of Mistakes: Investing is not what you know or understand, it is largely how you act with what you know! Therefore, it is a mistake to neglect the investor’s behavior and understand the main mistakes. The issue needs training and follow-up.
8 Know the difference between information and audience influence: The share price is a constant struggle between supply and demand, as many different behaviors affect this equation. The important thing is to know the stock information, and take advantage of any imbalance in that equation in your favor! Don’t rush with the crowd about the market or even a particular company.
9 Buying volumes: This aspect is neglected by investors, which is if you decide to build a portfolio, how do you actually implement the buying operations? If you decided to invest at the beginning of 2006 and pumped all your money in at once, then surely your loss will be huge! You need a clear buying policy that matches your goals and the risks you can take.
10 Read: The investor should read in all fields, not just investment and business. Also reading books and ideas that might contradict his investment beliefs! The problem of rhythm of work may hinder reading with the abundance of meetings and following up on markets and communications, so a daily habit must be created for reading at a specific time.
The memo written by Michael about how to be a successful stock market investor is online (14 pages): Reflections on the ten Attributes of Great Investors.
The aforementioned points are known facts for every successful investor in the stock exchange and for all investors who multiplied their money hundreds of times over long periods. Facts, not perspectives, my dear. The skills and fundamentals mentioned are simple in their narration, but they need knowledge and discipline in thinking, applying and updating information on an ongoing basis. Many may know where and when to buy, but few know when to sell.