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The Common Trait in
Highly Successful Investors
By W. Scott O’Neil
The Common Trait in Highly Successful Investors
Investors able to grow their portfolios year after year do not necessarily have exceptional
intelligence, experience, or intuition. By far, the most common trait they share is discipline.
Disciplined investors not only stay tuned into the market whether it’s up or down, they
also use a set of proven rules that protect them from trading emotionally when market
volatility strikes.
Why is this so important? Emotions such as fear and greed drive our worst buy and sell
decisions. To make matters worse, pride steps in and leads us to rationalize losses, and
hope can make us hold on to stocks that demolish our profits-if not our entire portfolio.
Learn more about the pitfalls of emotional investing.
Following a set of rules not only diminishes the time you spend battling your emotions, it
also gives you a consistent approach to making profits and taking better control of your
portfolio. Even better, rules are accessible to all, re­gardless of investing style or experience
level. Every successful money manager has a set of rules that anyone can study and apply
to their portfolio.
Where might you find these rules? Many successful investors have books that outline their
philosophy and their rules. If you are a growth investor, you’ll benefit by following the
detailed set of rules explained in How to Make Money in Stocks by William J. O’Neil. If
you are a value investor, The Intelligent Investor by Benjamin Graham or Buffettology by
Mary Buffett will help you set your course. But be aware that many investing books are
not guides for investing. They delve into the psychology of risk and other factors, without
really giving you any tangible way of dealing with it. In the end, you want a set of if-then
rules that govern your portfolio management and the buying and selling of individual
stocks.
There is one golden rule to follow above all-no matter your style: Up or down, the market
trend is your friend. In other words, the majority of stocks always follow the overall trend
of the market. So, no matter how great a stock’s fundamentals, if the market is in a downtrend, don’t buy it. There’s a good chance it will go down the minute you buy it, along
with the rest of the market. There are also those rare times when it is better to be fully
in cash-such as 2008. When the market dropped that year, it didn’t matter how strong a
stock’s funda­mentals were or how compelling the underlying story was, all stocks got hit.
The signs of abnormal market action were clear in the charts of the major indices and
leading stocks. If those investors who took a major hit had been following a set of investMarketSmith.com/benefits (800) 452-4422
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The Common Trait in Highly Successful Investors
ment rules and tracking the movement of their holdings on stock charts, they would have
gotten out of the market in time-or at least greatly reduced their losses.
When the market is in an uptrend, it is still important to buy a stock when it has the most
potential to go higher-and a stock chart can help you do that, too. When institutions-big
mutual funds and pension funds-accumulate a stock, it is apparent on the chart, and you
can monitor this action by looking for patterns. Most important to remember is that a
significant portion of your portfolio gains are made when the market moves out of the
downtrend (or correction) and back into an uptrend. This is why disciplined investors
don’t tune out during downtrends. They get ready to act by knowing which stocks have
held up the best and look ready to soar at the upturn.
Learn more about rules and disciplined investing at MarketSmith.com.
MarketSmith.com/benefits (800) 452-4422
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