How Do I Become A Successful Investor In The Stock Market?

When I first started out my career in finance, I asked myself that exact same question. After graduating from college I thought moving up to Wall Street would be the best way to learn how to invest in stocks. It makes sense right?. If I was going to learn how to make money I’d have to do if from the best and the brightest in the world. I targeted all my job hunting efforts to land a job on Wall Street and moved straight up to New York when I was offered a job to work at Lehman Brothers, one of the oldest and most prestigious investment banks on Wall Street.

Four years later I had seen and learned a lot about the inner workings of an investment bank but I still wasn’t getting any richer. Sure, give me access to a huge balance sheet and I could generate returns for you but that still didn’t help me get from point A to B. Just like many young and naive investors, I tried to get rich quick and dove into the markets with my hard earned cash all the wrong way. Looking back at the major mistakes I made when I was younger here is a list of do’s and don’ts if you want to start investing in the markets.

What you SHOULDN’T do:

1. Ask for stock tips: Once you admit that you don’t know anything about investing in stocks that’s all fine and dandy but that doesn’t mean you should cut corners. This was the major mistake I made in the early years. I didn’t know how to pick stocks so I would literally just ask my friends who I thought were smarter than me for “any good stock tips?” Sure, some of my friends would give me good ideas but the problem is when the ideas went sour whose fault was it? Considering it was just a “tip” could I actually blame them? After All the decision and how much to invest was all on me. Furthermore, it burned a few friendships along the way.
2. Try to piggyback off of broker’s research: I was working at a major global investment bank at the time and had access to their research department. Surely these guys knew what they were doing right? They were making stock recommendations to the largest institutional investors in the world. They had to know what they were talking about. Wrong. Years on the sell side as a broker made me realize that many brokers are lazy. They don’t have skin in the game. Their recommendations will usually always be “safe”. And many are just treating it as a day job to pay the bills and hopefully get a nice bonus at the end of the year.
3. Try to piggyback off other hedge funds/investors: Ok so if brokers are lazy then surely fund managers aren’t. A few years in I discovered the 13F filing which is essentially a form required by the SEC from institutional investors with assets over $100mm. All the major funds file these reports. I thought it was gold! I could emulate the trades of the world’s smartest investors such as Warren Buffett, George Soros, and all the hedge fund managers. The problem with following 13F’s are that they are not required to report short positions. So if you are trying to mimic a hedge fund, you don’t know what the other side of the trade might be. You also aren’t fully aware of their investment thesis or exactly why they got into the trade, which will make it very difficult for you to monitor events or company news that might affect the position. Also, by the time the filing has come out, the fund may have long exited the trade. You never really know the exact price they entered at. (Funds must file no more than 45 days after the end of quarter date) Finally, it’s a lot of work to track all these filings in a consistent manner that will help you mimic the portfolio.
4. Get impatient and desperate: That’s what I did with my money which led me to try to score a quick win. As my stock trading portfolio suffered, so did my emotional stability. The more I lost the more I wanted to score a “quick win” in the markets to double down and make it all back. Bad move. This isn’t Vegas and you aren’t going to win the lottery.

What you SHOULD do:

1. Read (don’t be lazy): All great investors (and entrepreneurs for that matter) share an insatiable thirst for knowledge and the markets. It’s just one of those things. If you are passionate about investing you should read and learn as much about investing as possible. If you want to be a stock picker then a good place to start is in the value investing camp (I’m not saying this is the only way to make money, just a good base) by reading anything by Warren Buffett, Charlie Munger, Benjamin Graham, Joel Greenblatt, Howard Marks and of course the book Margin of Safety by Seth Klarman.
2. Invest in yourself (don’t be lazy): I’m not talking about “you need to have skin in the game” here. Everyone is usually eager to invest (throw away) their money in the markets. I’m talking about investing in learning the craft through books, conferences, courses, software, time. Anything that can help you get an edge and learn to be a better investor. If you have no problem pissing away your hard earned money on a stock tip then you should have no problem actually investing that same money into a course, investing class, or good newsletter that will help you in the future.
3. Find a mentor (but don’t be lazy): If you are lucky enough to be able to find someone to apprentice under then you will be able to springboard your learning. But finding a mentor also doesn’t mean being lazy and just trying to piggyback off them. (most great investors won’t allow that anyways, but will make sure you learn for yourself) Mentors can be actually bosses that your work for (at a fund) or “virtual” such as someone like Warren Buffett who may never know who you are but you follow religiously and emulate your investing style after.
4. Learn to think independently (don’t be lazy): This is perhaps the most important part of investing and can only come from doing your own work. Independent thinking and investment decision making is the only thing that will differentiate you from “Mr. Market” (if you don’t know what I’m talking about go read The Intelligent Investor by Benjamin Graham). People who are lazy and asking others for stock picks or trying to piggyback off of others do so often times because they are lazy and aren’t putting in the work, reading all the company’s filings (10Ks and 10Qs) and building their own financial models to formulate their own views of a company.
5. Be Patient: Again, there is no such thing as getting rich quick in the markets. If that is your goal then you probably should not be investing your money to begin with. Investing is a craft that takes years to learn and hone. I know it’s hard to be patient (we all need money NOW NOW NOW) but trust me, the sooner you shelve that mentality and view investing as an art, the faster you will start seeing real success in the markets.

As you can see, my greatest mistakes were impatience and being lazy. If you want to be an investor in the markets you are going up against the smartest, most brilliant minds in the world who have all the tools and resources as their disposal. The game has gotten extremely sophisticated. There are no such thing as quick wins or hacks if you want to be a successful life long investor. You have to put in the work, but if you do and are dedicated at learning the craft you can and will be successful.