There may be no magic mathematical formula or algorithm that can ensure investment success, but, according to market strategist Michael McCarthy, “there are some personality traits that do seem to predict success”.
The chief market strategist for CMC Markets said there is no one-size-fits-all approach to investing, but, rather, a certain attitude one must have to curry favour with the money gods.
“The right investments depend on our own goals, our own needs, our own time frame, our risk appetites and a whole lot of personal characteristics,” he told nestegg.
But, he says, the personality trait needed for profitability is confidence combined with a healthy dose of fear.
“One thing that I’ve noticed, and one thing I look for in people who are seeking to become professional traders – and this extends to investing – is that they’re confident,” he said.
“They’ve got the confidence to stand up and try things, because that’s what it takes to learn in markets.”
While his observations may have identified a common trait necessary for investment success, Mr McCarthy was quick to point out that nothing was certain in the world of investing.
“It doesn’t matter how intelligent [or] hardworking we are, we can’t predict the future, but can only keep trying to make the best decisions we can based on the information we have,” he said.
“It’s not about not being wrong, it’s about making sure when we are wrong that we keep our losses minimised.
“When people hang on and hope and end up wiping out a substantial part of their portfolio, that can be very damaging to them, because it undermines their confidence in the markets.”
Mr McCarthy also pointed that while healthy fear is a good thing, too much fear can hinder any investor, especially those new to investing.
He said he often sees people do very well when they practise investing with a demonstration account. These are accounts set up to help people learn the ropes of investing.
“But this practice account has play money in it,” Mr McCarthy he said.
“When they convert to real money, everything changes.
“That’s because once we put real money on the line, our emotions start to come into play.
“I’m not saying we should ignore emotions – they’re important parts of us and we all have them, of course – but if we make decisions in our investments based purely on emotion, we’re putting ourselves in danger.”
Mr McCarthy said being able to manage emotions was the key to developing the confidence to invest correctly.
He added: “Investing well is learnt by experience. It’s not something that can be learned from a book.
“The reason for that is it doesn’t just take our brain power to invest well, we also have to control and understand what our emotions are telling us.”
What do you think is the key to successful investing?