You Can’t Be a Successful Investor, Unless You Have This

You might have the capital, the focus, and the knowledge to take on the markets, but you may still be missing one ingredient to truly be a successful investor. When it comes to investing, emotions can get the best of us and as such, an investor needs the right temperament in order to attain success.

“Humans are emotional beings. We are genetically predisposed to making knee-jerk decisions, following the crowd, and generally acting irrationally, especially when it comes to our finances,” wrote Matthew Frankel in a Daily Journal article. “What is the right temperament for an investor? As Warren Buffett puts it, ‘You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.’ In other words, you need to be able to trust your knowledge, apply logic and analysis to your investment decisions, and avoid a herd mentality.”

When markets are roaring to new highs as seen in the extended bull market, it’s easy to get greedy and overconfident. On the flip side, when markets are selling off like we recently saw during the coronavirus pandemic, it’s easy to lose your cool and make irrational moves.

“It is our instinct to be greedy and put our money into the market when prices are rocketing higher (known as ‘fear of missing out’) because everyone else is making money, and naturally, we want in on the action. Then, when our stocks are plunging, fear takes over, and we start wondering if we should sell ‘before things get much worse,’” Frankel wrote. “Learning to essentially ignore your emotions can be a difficult skill to master, but it’s a major determinant of your success as an investor, so it’s important to make it a priority.”

With the reference to famed value investor Warren Buffett, it makes sense to mention a value play exchange-traded fund (ETF) like that involves sifting through the Nasdaq to find value via the Principal Contrarian Value Index ETF (PVAL). PVAL seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq U.S. Contrarian Value Index (the “index”).

Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index at the time of purchase. The index uses a quantitative model designed to identify equity securities in the Nasdaq US Large Mid Cap Index (the “parent index”) that appear to be undervalued by the market relative to their fundamental value.

For more market trends, visit ETF Trends.