Financial Freedom

All Great Investors Have These Two Qualities

  • If you want to achieve long-term investment success, you should first work to establish the correct mindset.
  • Today, Alexander Green explains why the correct mindset is a key element in building wealth.

In Friday’s column, I noted that a particular mindset has played a key role in The Oxford Club’s long-term investment success.

It is probably best described as rational optimism seasoned with healthy skepticism.

Let’s start with our positive outlook.

Despite being bombarded 24/7 with negative words and images by the mainstream media, we view the United States as a place where a lot more goes right than wrong.

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We have the most dynamic economy in the world. The best research centers, universities and companies are here. Our country attracts more students, more immigrants and more investment capital than any other. And the industries of the future, from biotechnology to nanotechnology, are centered here.

Life expectancy, educational attainment and median household net worth are all at record highs.

Terrorist attacks, violent crime, air and water pollution, and even divorce rates, teenage pregnancies and abortion rates have been coming down for years.

We all carry mental images of the world we live in and how the future will unfold.

Some see the glass as half full. Others don’t.

However, psychologists have discovered that the vast majority of healthy, successful individuals are optimistic, even when it doesn’t seem warranted.

A positive outlook motivates us to be proactive. This is particularly true in the investment arena.

History’s greatest investors – from Warren Buffett to Peter Lynch and Sir John Templeton – had a long-term optimism about the future that simply didn’t have an off switch.

That doesn’t mean we don’t hedge our bets or take concrete steps to reduce risk and volatility. We do.

But we also have an abiding faith in the ability of technology, human innovation and capital markets to meet society’s needs and solve our most pressing problems.

(We see that during today’s pandemic as millions of scientists and researchers work with unprecedented speed to bring us a successful therapy and vaccine for the coronavirus.)

Rational optimism doesn’t mean we turn a blind eye to negative circumstances – or that we never entertain darker thoughts.

But there is a huge potential payoff in seeing gray skies as just passing clouds.

Optimism is a source of courage and confidence. It motivates us to set goals, to take risks. It encourages persistence in the face of obstacles.

Investors with a positive outlook don’t sell in a panic.

Nor do they turn up their noses at opportunities in a down market, like the one we experienced in the first quarter.

Our optimism, however, is tempered by skepticism.

We know that, aside from death and taxes, few things in life are guaranteed. And that nothing is in the financial markets.

(In 2011, Standard & Poor’s even downgraded the U.S. government’s top-notch AAA rating to AA+.)

We express our skepticism in the form of humility.

We can’t know for certain what the economy or the markets will do next. And neither can anyone else.

However, we do know that all people have economic wants and needs and that businesses compete to meet them.

We know that owning a profitable business is the best way to create and preserve a fortune.

We know that owning several businesses in different industries – a diversified portfolio of stocks – is the least risky way to achieve this.

And we know that you outperform the market not by jumping in and out of it but by identifying companies that generate exceptional returns.

Still, long-term success takes time and patience. Humility is essential.

In the financial markets, arrogance and big egos get taken down like the Berlin Wall.

So our investment approach combines an understanding of the present, optimism about the future, and a deep humility about our ability to predict or control events.

More than any strategy or recommendation, this attitude – this mindset – is responsible for our success.

You should make it yours.

Good investing,

Alex


About

An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.

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