Learning how to be a good investor starts with studying those who have been successful before you.
Tony Robbins has been a coach to C-suite executives for over forty years. When these C-suite executives invest their wealth, Robbins notices several factors that were common among these successful people. In episode 37 of Tim Ferriss show, in exploring the topic of how to be a good investor, Tony Robbins found 5 factors that all these successful investors shared.
The 5 Factors of Successful Investors
1. Successful Investors Use Overly Simplistic Approaches
“They focus on not losing money first.”
Tony Robbins
It is common to focus on trying to gain money, but successful investors focus on not losing money first. Jack Bogle did this when creating Vanguard and the first index fund. He focused on getting the basket of the top 500 companies (S&P 500 as it is today) to be his basic investing method. That is how his company manages wealth today, tracking it by investing in index funds, and staying consistent with investing money every month.
2. They are Obsessed with Asymmetrical Risk and Reward
Investors should look to take on the least amount of risk for the biggest reward, ideally looking for returns of at least 5 to 1. Which translates to successful investors can be wrong 80% of the time, but the one time they are right, it covers all their losses and can potentially make an enormous profit.
Kevin Rose (investor in Twitter, Tesla, Shopify) states that people should have 80% of their portfolio locked in conservative index funds. Much like the S&P 500 index that Jack Bogle created. The other 20% needs to be invested in high reward investments. Pick five IPOs. Four could fail, and one could cover the losses of the other four and then some. For those seeking angel investing advice, Kevin advises picking 10-12 companies to invest a small amount of money in, instead of 2 or 3 that take the whole fund. Diversifying the companies increases the odds of seeing the asymmetric rewards of one company being the next Amazon. Learning how to be a good investor continues with seeing these potentially high-reward situations.
3. Investors Know They are Going to be Wrong. They Allocate their Portfolio Appropriately
It is impossible to perfect at investing. I once talked to a hedge fund manager who was the best in his office. He was right 55% of the time. This man spent sixty hours a week investigating stocks with all the sophisticated tools at his disposal. He is still only a little better than half. Know you are going to be wrong.
Invest your portfolio in Index funds, use retirement accounts, try to pick some asymmetrical reward stocks, and maybe even use a very very small part of your portfolio (.02%) as “garbage fire money”, which is highly speculative bets that could pay off, such as crypto-currency.
Having a balanced portfolio is the key to learning how to be a good investor. You don’t want to expose yourself to anyone kind of particular risk.
4. Successful investors are lifelong learners
“They are obsessed with learning more.”
Tony Robbins
Investors are obsessed with learning more in all areas of life. They read books weekly, talk with experts to learn about different domains, and seek learning experiences every day. They reflect and learn from their mistakes and seek opportunities to gain a general understanding across all fields.
Successful investors have a growth mindset where they know they can always be better by learning more.
5. They are real givers
It is easy to see people who have a lot of money who aren’t giving money, but a lot of the wealthiest people donate a lot of their wealth.
If you want to work on donating more money to causes to those you believe in, check out donor-advised funds.
Main Take-Aways
- There is no need to use complicated techniques or investing strategies to be successful. Most people who have made millions investing have used simple methods to get there.
- Keep a mostly balanced portfolio that can grow steadily with time. Then use the remaining part of the portfolio to look for the asymmetric reward to the risk, and even in that risk, diversify the investments to increase the odds of winning. One winner can cover all of the losers.
Action items
How are you investing your money currently? How can you implement a simpler system to maximize the potential of keeping a balanced portfolio while searching for higher risks and rewards?
