What's the secret of successful investing?
Oct 05, 2006
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What’s so special about rich people? Forbes Magazine’s annual list of America’s richest people came out last week. Looking over the list, I couldn’t help but wonder what got these people there.
When it comes to investing, people often ask me a similar question… What’s so special about successful investors? People think there’s some kind of magic ingredient... a weird instinct some operators are born with that enables them to take millions from the market while everyone else struggles. This is a question I can answer…
The truth is, there is a magic ingredient. It’s called conviction. You can’t win without it – either in business, or in the investment markets.
Why conviction is the key to good investment
Years ago a friend told me to buy stock in a company. He had conviction that the quarterly results were going to be spectacular. I believed him and bought the stock two weeks before the announcement date. Well, he was right. The earnings were spectacular. However, the stock went down so much in the run up to the press release, that even a decent bounce on the day couldn’t save me from a 25% loss.
I sold immediately. I had no conviction. A year later, the stock had doubled. Two years later it had tripled.
If I had done any work on this company, I could have seen immediately how strong the investment case was. But I didn’t. I was lazy. I made a couple of mouse clicks and loaded the stock into my portfolio. When the time came to make a decision on my stock, I blew it.
Investment tips: See our section on investment strategy for hints and tips, including how to emulate investment legends such as Anthony Bolton and Warren Buffett.
You could say hard work is just as important to success as conviction. And experience and good sense are too. You are missing the point. Conviction IS hard work. It IS experience. It IS good sense. It’s all these things bundled together.
Conviction in business led Bill Gates to the top of the Forbes list. And conviction in his investment ideas led Warren Buffett to the number two spot.
These guys invested everything... their money, their families, even their time, into their convictions. They had enough belief in their abilities, that even when things looked bad – and I’m sure there were times – they never gave up...
Why you should have conviction in gold now...
There’s one investment I have conviction in now. That’s gold.
Whatever happens, I know gold will perform well. Sure, it may fall now and again, but it won’t fall as fast as everything else. It didn’t form a crazy bubble like copper and zinc. China didn’t suck up the world’s supplies. So the downside is limited. But the world is still awash in liquidity, credit and inflation. The dollar is still a huge towering pile of paper risk. The average investor is still complacent.
Yes, despite gold’s recent pullback, I’m convinced gold is the best place for my money. It’s my favorite investment. I’m bullish and that won’t change.
...but perhaps not stocks
What about my other convictions? They’re hard to come by… For example, at times I’ll feel like stocks are a great speculation, as the Dow is near all-time highs at a time when there’s lots of fear out there – a recipe for much higher prices. But on some days, I see the opposite scenario. I can easily picture five years of stagnant stock prices as well.
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In sum, I have no conviction about stocks. And in this frame of mind, betting on the stock market, for me, would be lethal. I’d have no courage to overcome the difficult times when they arrive. Great investors have conviction. Investors who take stock tips from friends without doing any homework (as I did above) are bound to lose money, as they have no conviction.
If you don’t believe it down in your bones, chances are good you’ll lose money on it.
So… where do you have conviction now? Put your money there…
Tom Dyson is a frequent contributor to DailyWealth, a free contrarian investment newsletter focused on the safest, most profitable investments in the world. To begin receiving a free subscription - and a free report on the three best gold investments you can make right now - click here.
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