What It Takes To Be A Great Investor

The investment world is often a cloudy, intimidating landscape. For sure, it is not for the faint of heart. Sometimes it can be very difficult for one to put up their own money lacking any formal training or guidance. Oftentimes, it is difficult to trust those giving you advice who have had formal training. With that said, short list of the toolbox that you need to navigate through the scary and meaningless:

1) Confidence. One must have the ability to believe in the thesis which they have drawn, and to stand by it when your own money is on the line even if it does not work immediately. If you believe in your thesis, and your thesis makes sense, more likely than not you will make money. If you're not sure if your thesis makes sense, or you fear your judgment is biased, ask a friend for a second opinion.

2) Patience. If it's too good to be true, it probably is. Historically the entire market only returns something like 8%. At that rate, your money will double roughly every nine years. Every portfolio has winners and losers, and you're not going to pick 100% winners. Don't expect every investment to return 50% every year, you're just setting yourself up for disappointment. If the story is good, and your thesis is sound, you will make money over the long run.

3) Diversification. Jim Cramer says that diversification "is the only free lunch", and he's right. This is right up there with "don't put all your eggs in one basket". Diversification will smooth out your returns over the long haul, and will make you less susceptible to huge swings.

4) The ability to read financial statements. Financial statements tell a story. If you don't know what the story is, where the company has been, and where it is likely going, you might as well throw darts blindfolded. Also, read the notes to the financial statements, the independent auditor's report, the CEO's letter, and listen to the conference calls. Often there is a lot of good information in these pieces. Not everybody reads or listens to this stuff, doing so gives you a leg up on the market, and makes you a savvier investor.

5) The ability to research and seek out new ideas. If mainstream America knows about an opportunity, you're probably the last one to know, and you probably already missed the boat. Be the first one in. Buy when others say sell, and sell when others say buy. Do research to seek out new ideas and opportunities. Then, research those opportunities until your thesis is well supported.