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Why Staying Humble And Prudent Makes You A Better Investor

Investors may be surprised to learn this, but attitude also matters a lot when it comes to investing. In attitude, I refer to an investor’s inclination to learn and his or her general approach regarding investing.

I would go so far as to say that people with certain characteristics in their disposition may find it much more difficult to do well in investing, because they end up unknowingly sabotaging themselves time and again. This article highlights the importance of certain desirable behavioural traits so that we can self-evaluate to see if we are headed in the right direction.

Humility

Being humble is probably one of the most underrated qualities when it comes to investing. Many investors associate investing with pride and ego as it involves money and the chest-thumping ability to “beat the market.” But I would argue that being humble and modest keeps us grounded and allows to learn from mistakes – I’ve written before on how crucial it is to document our mistakes.

If you’re a complacent investor who is filled with hubris, you may neglect to properly check your facts and assume that yo can never be wrong. Complacency may also lead to over-confidence, which would in turn cause an investor to make big bets in the stock market more often as he assumes that he is mostly correct; this increases the risk of him making losses should his thesis be wrong.

Humility also sharpens our mind, as we would be free from the arrogance which exposes other investors to blind spots. Logic and rationality should prevail when it comes to investing analysis and execution, and we should continually tell ourselves that there is so much out there we do not know, in order for us to remain receptive to new developments, and to avoid psychological biases which can negatively impact our results.

Prudence

Prudence is a trait which will ensure that we can limit our losses and live to invest another day. Being conservative may not result in huge capital gains, but it allows us to sleep well at night in case of a recession or sharp downturns in the market. Being prudent extends to not just our choice of investments (a good choice of companies would be those with steady and strong businesses, healthy balance sheets, and plenty of cash flows), but also our portfolio management (setting aside an adequate cash buffer to guard against rainy days).

Foolish Bottom Line

Many investors have a tendency to talk about the technical aspects of investing. But successful investing boils down to having the right temperament and attitude as well. Having the right mindset will allow us to continually learn from our mistakes and will also allow us to tide through tough times.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.